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Optimal currency basket in a world of generalized floating : an application to the nordic countries

  • Hali J. Edison
  • Erling Vardal

The purpose of this paper is to derive optimal weights for a currency basket taking into consideration the objective of the policymaker. We carefully distinguish between the two terms: effective exchange rate index and currency basket, which are often used interchangeably in the literature. In general, our analysis is an extension of the work of Branson-Katseli and Lipschitz-Sundararajan and then applied to the Nordic countries. We use the policy objective of minimizing fluctuation in export production and illustrate our results using Norway, Sweden and Finland. The weights we derive create optimal currency baskets which are different from the ones used in the countries.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1985/266/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1985/266/ifdp266.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 266.

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Date of creation: 1985
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Handle: RePEc:fip:fedgif:266
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  1. Asheim, Geir B., 1984. "Properties of a system of currency baskets," Journal of International Economics, Elsevier, vol. 16(3-4), pages 311-317, May.
  2. Branson, William H. & Katseli-Papaefstratiou, Louka T., 1980. "Income instability, terms of trade, and the choice of exchange rate regime," Journal of Development Economics, Elsevier, vol. 7(1), pages 49-69, February.
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