Interactions of Exchange Rate Policies: A Case of Two Small Interdependent Countries

The purpose of this study is to analyse exchange rate policy interactions between two small interdependent economies operating under adjustable pegs in a world of generalized floating, with Finland and Sweden as the empirical backdrop.

The study draws on three bodies of literature: the effects of devaluation, international economic policy coordination, and optimal peg choice. Its distinguishing feature is the focus on two small — rather than one small or two large — interdependent economies, which requires analytical frameworks different from those conventionally used in international monetary theory.

The analysis is intended as a robustness check of existing results, not as a descriptive account of past Bank of Finland policy. The approach is therefore deliberately abstract rather than historically descriptive.

• ISSN: 0358-5980
• ISBN: 951-9282-08-4