Working Paper: NBER ID: w3918
Authors: Hans Lindberg; Lars E.O. Svensson; Paul Soderlind
Abstract: Devaluation expectations for the Swedish krona are estimated for the period 1982-1991 with several methods. First the "simplest test" is applied under either only the minimal assumption of "no positive minimum profit" or the additional assumption of uncovered interest parity. Then a more precise method suggested by Bertola and Svensson is used, in which expected rates of depreciation within the exchange rate band, estimated in several ways, are subtracted from interest rate differentials. In addition the probability density of the time of devaluations is estimated. Finally, estimated devaluation expectations are to some extent explained by a few macrovariables and parliament elections.
Keywords: devaluation expectations; Swedish krona; exchange rate regime; interest rate differentials
JEL Codes: E42; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Interest rate differentials (E43) | Devaluation expectations (F31) |
| Expected rates of depreciation (E43) | Devaluation expectations (F31) |
| Market expectations (D84) | Actual devaluation events (F31) |
| Current account balance (F32) | Devaluation expectations (F31) |
| Unemployment rates (J64) | Devaluation expectations (F31) |