DP377 | Exchange Rate Policy, Inflation and Unemployment: The Experience of the Nordic EFTA Countries

Publication Date

01/02/1990

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Abstract

This paper reviews the exchange rate policy experience of the Nordic EFTA countries (Finland, Iceland, Norway and Sweden) since the early 1970s. The paper briefly describes the main features of the national economies of the Nordic EFTA countries in an international perspective and their exchange rate arrangements in particular, and then attempts to asses the principal advantages and disadvantages of these and alternative arrangements from the Nordic point of view. The paper also tries to evaluate macroeconomic performance in these countries since the early 1970s in view of the exchange rate and other policies that have been followed, with special emphasis on their devaluation record during 1976-82 and the credibility of current policies. In particular, the Nordic EFTA countries have experienced considerably less unemployment (as intended) at the cost of more inflation and, to a lesser extent, a weaker external position than other industrial countries on average in recent years. The paper concludes with a brief discussion of the implications of EC current developments as 1992 approaches for the viability of existing exchange rate policies in the Nordic EFTA countries.