Working Paper Series,
Uppsala University, Department of Economics

Abstract: In this paper I investigate the relevance of the exchange rate regime for macroeconomic stability. I simulate hypothetical macroeconomic developments under different regimes in Sweden during the period 1972 -1996. The main question is how stable output would have been if Sweden had had a floating exchange rate regime. Would it have been better with a floating exchange rate than the actual quasi-fixed regime? Also the development with an irrevocably fixed exchange rate is investigated. The results indicate that the central bank can stabilize much of the macroeconomic disturbances under a floating exchange rate, but still the volatility of the macroeconomic variables under the hypothetical floating exchange rate regime is about the same as under the actual quasi-fixed regime.

Keywords: Exchange rate regimes; macroeconomic stability; monetary policy

JEL-codes: E52; F31; F41

25 pages, December 15, 2000

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wp2000_25ny.pdf  Updated version

2000wp25.pdf  Original version

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