Scandinavian Working Papers in Economics
Working Papers,
National Institute of Economic Research
No 78: Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?
Kristian Nilsson ()
Additional contact information
Kristian Nilsson: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
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
35 pages, March 1, 2002
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Working-Paper-78-Do-...e-Exchange-Rate-.pdf
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