Devaluation Expectations: The Swedish Krona 1985-92.

Abstract

Devaluation expectations for the Swedish krona are estimated for the period 1985 to 1992 using daily data for exchange rates and interest rates. The 90 percent confidence intervals for these estimates obtained by the 'drift-adjustment' method suggested by Giuseppe Bertola and Lars E. O. Svensson (1993) are substantially narrower than the '100 percent confidence intervals' obtained by the 'simplest test' described by Svensson (1991). Estimates for various maturities are used to infer the expected timing of devaluations. Copyright 1993 by Royal Economic Society.