Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 224: Should Finland and Sweden Form a Monetary Union?

Lars Jonung () and Fredrik Sjöholm ()
Additional contact information
Lars Jonung: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Fredrik Sjöholm: The European Institute of Japanese Studies, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper surveys the future exchange rate policy of Finland and Sweden using the theory of optimal currency areas as a framework for the analysis. We examine which countries are most suitable to form a currency union with Finland and Sweden. The Finnish and Swedish economies display great similarities regarding industrial structure, business cycle patterns, migration and the design of economic policies. There are substantial differences between on the one hand Finland and Sweden, and on the other, many EU countries which are potential members of a future EMU. Our calculations give support for a Finnish-Swedish currency union and put a Finnish-Swedish membership of the EMU into question. Our results stress the importance of Finnish-Swedish co-operation in monetary matters. This could take many forms, of which a monetary union is one.

Keywords: Monetary integration; optimum currency areas; Finland; Sweden.

JEL-codes: F33

30 pages, February 26, 1998

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