Nordic Lessons from Exchange Rate Regimes

Abstract

The Nordic countries of Denmark, Finland, Iceland, Norway and Sweden share common history, culture and institutions. Four, with the exception of Finland, have languages that stem from a common root. Yet the five countries have chosen different paths when it comes to membership in international organizations. Denmark, Iceland and Norway became founding members of the North Atlantic Treaty Organization while Finland and Sweden decided to stay neutral. Denmark, Sweden and Finland belong to the European Union while Iceland and Norway only belong to the European Single Market. Only Finland of the three European Union member countries has adopted the euro as its currency, Denmark has a fixed exchange rate against the euro and Sweden has a floating exchange rate regime. Yet, in spite of different monetary regimes, the economic performance in recent decades is quite similar, casting doubt on the importance of the exact regime chosen.