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Sources of Real Exchange Rate Fluctuations in the Nordic Countries
Author(s) -
Alexius Annika
Publication year - 2001
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/1467-9442.00247
Subject(s) - purchasing power parity , economics , exchange rate , contrast (vision) , productivity , monetary economics , econometrics , variance (accounting) , relative purchasing power parity , macroeconomics , international economics , accounting , artificial intelligence , computer science
In an attempt to move beyond the purchasing power parity hypothesis, this paper addresses two issues. The first concerns the causes of movements in real exchange rates. In contrast to the typical result, supply shocks are found to dominate the long‐run variance decompositions for each of the four Nordic countries under study. This suggests that productivity developments are the most important determinant of long‐run movements in real exchange rates. 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.