Discussion paper

DP15468 On the Weakness of the Swedish Krona

The Swedish krona depreciated sharply between 2013 and early 2020 but standard models
are unable to explain this depreciation. This paper reviews the experience of the krona.
By estimating an "equilibrium" value for the real exchange rate, we confirm a growing
undervaluation after 2014. The depreciation could initially be explained by a decline in
interest rates and then by quantitative easing and the Riksbank communication regarding
the krona. However, monetary policy cannot explain the extent of the depreciation nor the
long depreciation period of seven years. We then review various complementary explanations
proposed in the literature including, imperfect information, financial frictions, the role of
financial shocks and the convenience yield. Many of these elements can plausibly explain
the weakness of the krona, but cannot be quantified.


Bacchetta, P and P Chikhani (2020), ‘DP15468 On the Weakness of the Swedish Krona‘, CEPR Discussion Paper No. 15468. CEPR Press, Paris & London. https://cepr.org/publications/dp15468