What causes fluctuations in the exchange rate? A quantitative study on the underlying variables that affects the Swedish Krona and Euro exchange rate

Abstract

This paper focuses on analysing the SEK/EURO exchange rate and focuses on testing if 5 specific variables chosen based on previous research affect the SEK/EURO rate. The study uses monthly data from January 2000 to September 2019, the five variables tested are Interest Rate differentials, Inflation Rate differentials, Yield Curve differentials, Implied Volatility Index and the difference in Economic Sentiment. We ran both bivariate and multivariate regression analysis and found, in contrary to theory, no significance for inflation in neither of the tests. Our second finding worth noting, were that the variable Economic Sentiment showed no significance when tested separately in a bivariate regression but significant when tested simultaneously in a multivariate regression.