Trend Movements in the Swedish Krona Exchange Rate against the Euro – An Explanatory Framework

Ronald Albers and Staffan Lindén

No 90, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The paper proposes an explanatory framework to account for long-term movements in the nominal rate of the Swedish krona against the euro. A model with few variables (short-term interest rate differentials, broad money and a measure of market volatility) tracks trend developments quite well. Our approach is anchored in purchasing power parity theory and empirics. The results show that interest rate differentials affect the exchange rate immediately, while broad money works more slowly as its effects take time to spread, but has a larger impact. The VIX, a measure of market uncertainty, captures short-term volatility and explains large swings during economic crises, consistent with the view that the Swedish krona is a risk-sensitive currency. This results in the euro-krona nominal exchange rate showing broad alignment with purchasing power parity measures over a longer period.

Keywords: Euro-Swedish krona; exchange rates; purchasing power parity; effective exchange rates; uncovered interest parity. (search for similar items in EconPapers)
JEL-codes: C3 E31 E4 F31 F37 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2026-05
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:090

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