Salinity and temperature variations in the Baltic proper and the Kattegat have been analyzed with a numerical ocean model and a large amount of observational data. In the model, the Baltic Sea is divided into 13 sub-basins with high vertical resolution, horizontally coupled by barotropic and baroclinic flows and vertically coupled to a sea-ice model which includes dynamics as well as thermodynamics. The model was integrated for a 15-year period (1980-1995) by using observed meteorological forcing data, river-runoff data and sea-level data from the Kattegat. The calculated 15-year median profiles of salinity and temperature in the different sub-basins are in good agreement with observations. However, the calculated mid-depth salinities in the Arkona Basin and Bornholm Basin were somewhat overestimated, and the calculated deep-water temperatures in the Arkona Basin and the Bornholm Basin are somewhat lower than the observed values. Frontal mixing and movements in the Kattegat and the entrance area of the Arkona Basin were important to consider in the model. Water masses were simulated well, and prescribing constant deep-water properties in the Kattegat proved to be a reasonable lateral boundary condition. Further, comparisons were made between observed and calculated seasonal and interannual variations of the hydrographic properties in the Eastern Gotland Basin, as well as the interannual variations of the annual maximum ice extent. We conclude that the model can simulate these variations realistically. The major Baltic inflow of 1993 was also simulated by the model, but the inflowing water was 1-2 degrees degrees too cold. Finally, the response times to changes in forcing of the Baltic proper and the Kattegat were investigated by performing the so-called lock-exchange experiment. Typical stratification spin-up times were of the order of 10 years for the Kattegat, and 100 years for the Baltic proper.