Is the Exchange Rate a Shock Absorber? The Case of Sweden.

22 Pages Posted: 15 Feb 2006

See all articles by Alun H. Thomas

Alun H. Thomas

International Monetary Fund (IMF) - European Department

Date Written: December 1997

Abstract

This paper uses a structural vector autoregression representation of the Mundell-Flemming model to analyze the determinants of movements in Sweden`s real exchange rate. It finds that, while (supply and demand) shocks account for over 60 percent of the forecast error variance, comparable to several Economic and Monetary Union (EMU) countries, demand shocks account for a higher fraction of these real shocks in Sweden than in those core countries. If real demand shocks result from controllable macroeconomic policies, the cost of relinquishing the exchange rate is no higher, and may be lower, for Sweden than for most core EMU countries.

JEL Classification: F30, F31

Suggested Citation

Thomas, Alun, Is the Exchange Rate a Shock Absorber? The Case of Sweden. (December 1997). IMF Working Paper No. 97/176, Available at SSRN: https://ssrn.com/abstract=883925

Alun Thomas (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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