Financial Flows and Exchange Rate Dynamics: Evidence from Sweden

Katja Artta, Marianne Nessén, Anders Vredin and Ettore Savoia ()
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Katja Artta: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Marianne Nessén: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Anders Vredin: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Ettore Savoia: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 456, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We examine how central bank foreign exchange (FX) operations affect nominal exchange rates by exploiting two large operations by Sveriges Riksbank: foreign currency purchases during 2021–2022 and domestic Swedish krona (SEK) purchases—that is, FX forward sales— during 2023–2024. Using daily data and local projections, we identify unanticipated operation shocks to the SEK against the euro (EUR) and the U.S. dollar (USD). On average, we observe sign consistency—depreciation during FX purchases and appreciation during SEK purchases. Three main results emerge: (i) effects unfold gradually but fade quickly, becoming statistically insignificant after about ten trading days; (ii) they are regimedependent, with FX purchases inducing larger depreciations and domestic currency purchase yielding smaller, delayed appreciations; and (iii) FX purchases generate long-run (11-60 days) currency-specific effects, with a stronger SEK depreciation against the EUR relative to the USD. However, results are more uniform across currencies in the short run (1–10 days) and throughout the domestic currency purchase period.

Keywords: Foreign exchange operations; Local Projections; exchange rates (search for similar items in EconPapers)
JEL-codes: E58 F31 F33 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-11-01
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
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