Sources of Real Exchange Rate Fluctuations in the Nordic Countries

Annika Alexius ()

No 90, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: In an attempt to move beyond the purchasing power parity hypothesis, this paper studies two issues. First, the causes of movements of real exchange rates are investigated. In contrast to the typical result, supply shocks are found to dominate the long-run variance decompositions for all countries. This suggests that productivity developments are the most important determinant of long-run movements in real exchange rate. A second topic is the relative importance of stationary and non-stationary components of real exchange rates. Also in contrast to previous findings, transitory shocks are more important than permanent shocks for three of the four countries.

Keywords: Real exchange rate; Purchasing power parity; Nordic countries (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ent, nep-ifn and nep-net
Date: 1999-09-01
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Published in Scandinavian Journal of Economics, 2001, pages 317-331.

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Persistent link: http://EconPapers.repec.org/RePEc:hhs:rbnkwp:0090

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