Real exchange rate fluctuations under flexible exchange rate regime. : The impact of the economic shocks on Swedish Krona.

Abstract: Title: Real exchange rate fluctuations under flexible exchange rate regime. The impact of the economic shocks on Swedish Krona. Authors: Anastasiya Bochkareva -870208; Karina Petrova – 880613 Supervisor: Christos Papahristodoulou Key Words: Swedish Krona; Real Exchange Rate; Economic Shocks; Real demand Shocks; Monetary Shocks; Supply Shocks; Flexible Exchange Rate Regime; Aggregate Demand/Aggregate Supply Model; Regression Analysis Institution: Mälardalen University Sweden, School of Sustainable Development of Society and Technology, Box 883, 721 23 Västerås Course: Bachelor Thesis in Economics, 15 ECTS-points, spring semester 2010 Problem: The extent of the Swedish krona fluctuations under flexible exchange rate regime in response to the supply, demand, and monetary shocks Purpose: The aim of this research study is to see which economic shocks had the greater impact on the Swedish krona under the flexible exchange rate regime. Precisely, were the theoretically suggest real demand and monetary shocks significant in explaining the real exchange rate fluctuations? And to what extent the labor productivity shock (the supply shock) influenced the krona during the studied period? Method: Multiple regression analysis; OLS Results: Monetary shocks accounted for major fluctuations of the Swedish krona since the currency was left to float freely. The real demand shocks were found less statistically significant. Supply shocks have had negligible impact on the Swedish krona fluctuations.