SHOULD FINLAND AND SWEDEN FORM A MONETARY UNION

The future exchange rate policy of Finland and Sweden is analyzed usin g the theory of optimal currency areas. We examine which countries are most suitable to form a currency union with Finland and Sweden. The F innish and Swedish economies display great similarities concerning the industrial structure, business cycle patterns, migration between the two countries and the design of economic policies. There a substiantia l differences between on one hand Finland and Sweden and on the other many EU-countries which are potential members in a future EMU. Our cal culations gives support for the creation of a Finnish-Swedish currency union and put a Finnish-Swedish membership of the EMU into question. We recommend a regional currency union for Finland and Sweden rather t han a Finnish-Swedish membership in EMU. Our results stress the import ance of Finnish-Swedish cooperation in monetary matters. It may take m any forms, a currency union is one.