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Optimal Currency Baskets for Small, Developed Economies

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  • Edison, Hali J
  • Vardal, Erling

Abstract

Optimal weights for a currency basket are derived under the assumption that the objective of the policymaker is to minimize fluctuation in the production of traded goods. Using the formulas derived in the analysis, various optimal basket calculations are carried out for Finland, Norway, and Sweden. For all these countries, the optimal basket weights for Germany and United Kingdom are found to be less than the grade share weights. The opposite is true for United States. Moreover, the actual weights in the basket of Sweden are almost identical to those the authors have computed as optimal. Copyright 1990 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Edison, Hali J & Vardal, Erling, 1990. " Optimal Currency Baskets for Small, Developed Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(4), pages 559-571.
  • Handle: RePEc:bla:scandj:v:92:y:1990:i:4:p:559-71
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    Cited by:

    1. Honohan, Patrick, 1993. "An Examination of Irish Currency Policy," Research Series, Economic and Social Research Institute (ESRI), number PRS18.
    2. Zihui Ma & Leonard K. Cheng, 2014. "An Optimal Currency Basket to Minimize Output and Inflation Volatility: Theory and an Application to Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 19(1), pages 90-111, February.
    3. Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011. "China s new exchange rate regime, optimal basket currency and currency diversification," BOFIT Discussion Papers 19/2011, Bank of Finland, Institute for Economies in Transition.
    4. Habib, Maurizio Michael & Stráský, Jan, 2008. "Oil exporters: in search of an external anchor," Working Paper Series 958, European Central Bank.
    5. P. Daniels, Joseph, 2001. "Optimal Currency Basket Pegs for Developing and Emerging Economies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 128-145.

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