Workshop on exchange rate determination

The Riksbank is today organizing a workshop on exchange rate determination. One year ago the Riksbank initiated cooperation with a number of external researchers as a complement to the bank’s internal analysis and research. At today’s workshop the five papers will be presented.

These five studies can be categorized roughly as follows. 

Macroeconomic approach:

Philip Lane, Trinity College Dublin:
"The Swedish External Position and the Kroner".  

The paper explores the dynamics of the Swedish external position. The author investigates trends in Swedish gross and net international investment positions and their components. The focus is on factors that may explain changes in net foreign asset position, i.e., capital flows, as well as valuation effects.

Discussant: Torbjörn Becker, Stockholm Institute of Transition Economics. 

Nicolas Coeurdacier, ESSEC Business School, Paris, and Philippe Martin, Sorbonne, Paris:
“The geography of asset holdings: Evidence from Sweden”.

The authors investigate the effect of the Euro from a financial perspective, i.e., they investigate the effect of the Euro on cross-border financial holdings. This is done by analysing the determinants of bond and equity holdings, as wells as banking assets, and by attempting to disentangle the effects of the Euro for countries both inside and outside the Euro-zone, with Sweden being a specific case.

Discussant: Karolina Ekholm, Stockholm University.

Market-microstructure approach:

Dagfinn Rime, Norges Bank, and Anna Lindahl, Stockholm School of Economics and Sveriges Riksbank: 
“Forecasting the Foreign Exchange Market using Private Information”.

The paper looks to order flow as explaining exchange rate movements rather than fundamental macroeconomic variables. The aim is to improve on the current understanding by use of high quality data of end-user order flow from five Nordic banks.

Discussant: Michael Moore, Queens University, Belfast.


Ethan Kaplan, Stockholm University, and Galina Hale, Federal Reserve Bank of San Francisco:
“Imperfect Common Knowledge and Learning in the Swedish Kronor Market”.

This paper contributes to the growing literature that attempts to explain exchange rate movements in terms of heterogeneous information and learning behaviour in exchange rate dynamics. The authors base their analysis on a range of factors that may affect exchange rates, i.e., prior prices, large versus small movements and measures of order flow.

Discussant: Marco Lyrio, Warwick Business School, Warwick. 

Microeconomic approach:

Richard Friberg, Stockholm School of Economics and Fredrik Wilander, ECON, Norway.
“Price setting transactions and the role of denominating currency in FX Markets”.

This study investigates to what extent Swedish firms denominate prices in foreign currency, primarily the Euro, and how this may affect the exchange rate. The paper examines price setting and invoicing behaviour of a large sample of Swedish exporting firms.

Discussant: Michael Devereux, University of British Columbia, Vancouver

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