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Import prices and nominal exchange rates in Sweden

Author

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  • Annika Alexius

    (Sveriges Riksbank, Sweden)

Abstract

The relationship between the nominal exchange rate and import prices is central to the determination of inflation in a small open economy like Sweden. Since the pass-through of exchange rate changes to import prices appears to be affected by the size of the country, it may be expected to be higher in Sweden than what has been documented for major nations. Using the Johansen (1988) approach to cointegration, the long-run pass-through of exchange rate changes to import prices on manufactured goods is estimated to be 0.6-0.8. This is slightly higher than what is typically found for small countries. A second result is that import prices are affected by Swedish macroeconomic conditions, which violates the small open economy assumption. Finally, neither the law of one price nor the small open economy assumption is rejected in the case of Swedish oil imports.

Suggested Citation

  • Annika Alexius, 1997. "Import prices and nominal exchange rates in Sweden," Finnish Economic Papers, Finnish Economic Association, vol. 10(2), pages 99-107, Autumn.
    • Handle: RePEc:fep:journl:v:10:y:1997:i:2:p:99-107
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    References listed on IDEAS

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    1. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    2. Jacobson, Tor & Vredin, Anders & Warne, Anders, 1994. "Common Trends and Hysteresis in Unemployment," SSE/EFI Working Paper Series in Economics and Finance 34, Stockholm School of Economics.
    3. Alexius, Annika, 1996. "Long Run Real Exchange Rates - A Cointegration Analysis," SSE/EFI Working Paper Series in Economics and Finance 119, Stockholm School of Economics.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Tor Jacobson, 1995. "Simulating small-sample properties of the maximum likelihood cointegration method : estimation and testing," Finnish Economic Papers, Finnish Economic Association, vol. 8(2), pages 96-107, Autumn.
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    Cited by:

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    2. Cooray, Arusha, 2008. "A Model of Inflation for Sri Lanka," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 4(1-2), pages 1-10.

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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