Macroeconomic policies and the balance of payments

Abstract: This thesis is a study of the relation between macroeconomic policies and the balance of payments. It is focused on institutional factors and empirical regularities pertaining to the Swedish economy. A major topic is the question whether there is any theoretical and empirical evidence that Sweden has some monetary autonomy. It is argued that risk averse behavior of private investors, in combination with the central bank’s exchange rate policy, creates some room for an independent monetary policy. On the other hand, capital controls that limit foreigners’ holdings of domestic securities seem to be ineffective. Another question concerns the determinants of the Swedish current account. Empirical results indicate that the disturbances to wages, government consumption and terms of trade are of relatively little importance to the development of the current account.