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Finland's Experiences and Challenges in the Euro Zone

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  • Kotilainen, Markku
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    Abstract

    In this paper we study Finland`s way to the Economic and Monetary Union (EMU) and her economic development as a member of the EMU. First, we describe the economic background of the membership and the arguments presented in research and discussion for and against it. Then we describe Finland`s economic performance in the Euro zone. The main part of the paper consists of an analysis of the Finnish economy in terms of some crucial determinants for an optimal monetary union. These include differences in production structures, differences in the country composition for exports, output variations, housing sector developments, interest rate developments in comparison with the Taylor-rule based rates, labour market flexibility, and fiscal policy. Finland is analysed in the context of other EMU and EU countries, so the paper includes comparisons with them, too. Finland has performed very well until now. The analysis of the structural and cyclical factors of the economy indicates, however, that the Finnish economy continues to differ crucially from the core Euro zone countries. This means that the adjustment mechanisms, including labour market flexibility and fiscal policy, must be maintained effective and in some respects even be strengthened.

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    Bibliographic Info

    Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1040.

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    Length: 34 pages
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    Handle: RePEc:rif:dpaper:1040

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    Keywords: Economic and Monetary Union; EMU; Finland;

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    1. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    2. Kotilainen, Markku & Peura, Tapio, 1988. "Finland's Exchange Rate Regime and European Integration," Discussion Papers 277, The Research Institute of the Finnish Economy.
    3. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie Ward, 2006. "The interaction of labor markets and inflation: analysis of micro data from the International Wage Flexibility Project," Proceedings, Federal Reserve Bank of San Francisco.
    4. Olivier Blanchard, 2006. "European unemployment: the evolution of facts and ideas," Economic Policy, CEPR & CES & MSH, vol. 21(45), pages 5-59, 01.
    5. Kotilainen, Markku, . "Exchange Rate Unions. A Comparision with Currency Basket and the Floating Rate Regimes," ETLA A, The Research Institute of the Finnish Economy, number 21.
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