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Is the Exchange Rate a Shock Absorber? the Case of Sweden
Author:
Mr. Alun H. Thomas
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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 176
Language:
English
Publication Date:
01 Dec 1997
DOI:
https://doi.org/10.5089/9781451975499.001
ISBN:
9781451975499
ISSN:
1018-5941
Pages:
22
Keywords:
WP; exchange rate; demand shock; supply shock; nominal shock; Sweden demand shocks; single currency; core EMU country; forecast error variance decomposition; Phillips-perron test statistics; Real exchange rates; Supply shocks; Exchange rates; Government consumption; Real effective exchange rates
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund