Optimal currency basket in a world of generalized floating: An application to the Nordic countries |
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| Institution: | 1. University of Technology, Sydney, The Finance Discipline Group, UTS Business School, PO Box 123, Broadway, NSW, 2007, Australia;2. Auckland University of Technology, Department of Finance, Private Bag 92006, 1142 Auckland, New Zealand;3. Università degli Studi di Padova, Dipartimento di Matematica, Via Trieste 63, Padova, Italy;4. Devinci Finance Lab, Pôle Universitaire Léonard de Vinci, 92916 Paris La Défense Cedex, France;5. Quanta Finanza srl, Via Cappuccina 40, Mestre (Venezia), Italy;1. ISPMS Institute of Strength Physics and Material Science SB RAS, Akademicheskii pr. 2/4, 634021 Tomsk, Russia;2. TSU Tomsk State University, Lenina pr. 36, 634050 Tomsk, Russia;3. TPU Tomsk Polytechnic University, Lenina pr. 30, 634050 Tomsk, Russia;4. BAM Federal Institute for Materials Research and Testing, Unter den Eichen 87, 12205 Berlin, Germany;5. IVW Institute for Composite Materials, Erwin-Schrödinger Str., 67663 Kaiserslautern, Germany;6. State Key Laboratory of Solid Lubrication, Lanzhou Institute of Chemical Physics, Chinese Academy of Sciences, China;1. Department of Mathematics, University of Illinois at Urbana–Champaign, USA;2. Department of Mathematics and Statistics, York University, Canada |
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| Abstract: | This paper derives optimal weights for a currency basket taking into consideration the objective of policymakers in the Nordic countries. The analysis is based on the work of Branson and Katseli and Lipschitz and Sundararajan. This paper derives both export share weights by using a simple multi-country model and basket weights by assuming that the objective of the policymakers is to minimize fluctuations in the production of exports. The results show that only under special circumstances are the two weights the same. The basket weights tend to be functions of export weights and other factors such as the covariances of relative prices and exchange rate. Using the formulas derived in the paper, various optimal basket calculations are made for Norway, Finland, and Sweden. |
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