The case of Norwegian Krone
Papadamou, Stephanos[*] and Markopoulos, Thomas
Department of Economics University of Thessaly, Korai 43, 38333 Volos Greece Abstract
This paper aims to evaluate the performance of the major monetary models in Norway’s currency, which does not participate in major economic and/or political alliances like Euro zone or O.P.E.C. By using quarterly data for the period 1997-2008, cointegration and vector error correction models, the major monetary models are investigated. Our empirical results show that the monetary model is a valid framework for the long-run NOK/US$ exchange rate. Moreover, there is evidence for the typical linear restrictions of the flexible-price monetary model. The monetary models fit the data very closely indicating that they can be useful in determining the trend in the currency market of Norway. Short run dynamics of the exchange rate is also significantly affected by the changes in crude oil prices.
JEL Codes: G15, F30
Keywords: International Financial Markets, Foreign Exchange, Monetary Models