Currency exchange rate prediction in the long run : the NOK/EUR relationship

Abstract

The purpose of our thesis is to find how to determine the NOK/EUR exchange rate in 50-80 years. In part two we present the theory we find relevant for our thesis. Initially we describe the dynamics of exchange rates and how they are determined. Further we present macroeconomic models used for exchange rate determination. Macroeconomic variables do not affect exchange rates homogenously, and therefore in part three we present the drivers of the Norwegian krone. The choice of variables is based on the knowledge we have acquired throughout our studies, and previous studies on this subject. These drivers are evaluated in terms of predictive abilities in such a time horizon required for our thesis. In part four we consider the exchange rate problem from a more superior perspective. We evaluate the current and future position of the Norwegian-, the European- and the world economy. Finally, in part five, we make our prediction regarding the NOK/EUR exchange rate in 50-80 years. Due to the availability of data and projections related to the subject, we have chosen to split the prediction into a “short term”- (2011-2020) and a “long term” (2021-2090) part.