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Financial Flows and Exchange Rate Dynamics: Evidence from Sweden

Author

Listed:
  • Artta, Katja

    (Research Department, Central Bank of Sweden)

  • Nessén, Marianne

    (Monetary Policy Department, Central Bank of Sweden)

  • Vredin, Anders

    (Monetary Policy Department, Central Bank of Sweden)

  • Savoia, Ettore

    (Research Department, Central Bank of Sweden)

Abstract

We examine how central bank foreign exchange (FX) operations affect nominal exchange rates by exploiting two large operations by Sveriges Riksbank: foreign currency purchases during 2021–2022 and domestic Swedish krona (SEK) purchases—that is, FX forward sales— during 2023–2024. Using daily data and local projections, we identify unanticipated operation shocks to the SEK against the euro (EUR) and the U.S. dollar (USD). On average, we observe sign consistency—depreciation during FX purchases and appreciation during SEK purchases. Three main results emerge: (i) effects unfold gradually but fade quickly, becoming statistically insignificant after about ten trading days; (ii) they are regimedependent, with FX purchases inducing larger depreciations and domestic currency purchase yielding smaller, delayed appreciations; and (iii) FX purchases generate long-run (11-60 days) currency-specific effects, with a stronger SEK depreciation against the EUR relative to the USD. However, results are more uniform across currencies in the short run (1–10 days) and throughout the domestic currency purchase period.

Suggested Citation

  • Artta, Katja & Nessén, Marianne & Vredin, Anders & Savoia, Ettore, 2025. "Financial Flows and Exchange Rate Dynamics: Evidence from Sweden," Working Paper Series 456, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0456
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    References listed on IDEAS

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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