Working Papers, Konjunkturinstitutet - National Institute of Economic Research
Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?
Abstract: In this study, we make use of time series analysis to
calculate a real effective equilibrium exchange rate for Sweden. The
results indicate that the krona was severely overvalued in late 1992, when
the fixed exchange rate regime finally was abandoned. Furthermore, the
results indicate that the real effective equilibrium exchange rate has
depreciated substantially since the mid-1990s, primarily due to
deteriorating terms of trade. The results indicate that the krona was
undervalued by some 4 to 5 percent at the end of 2000, given the prevailing
economic conditions. We also provide some arithmetical examples of SEK/EUR
conversion rates, under various assumptions, to provide some guideline if
Sweden is to adopt the common currency in the near future.
Keywords: BEER; conversion rate; equilibrium exchange rate; real exchange rates; (follow links to similar papers)
JEL-Codes: F31; F32; F41; (follow links to similar papers)
35 pages, March 1, 2002
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