Abstract
Optimal weights for a currency basket are derived under the assumption that the objective of the policymaker is to minimize fluctuation in the production of traded goods. Using the formulas derived in the analysis, various optimal basket calculations are carried out for Finland, Norway and Sweden. For all these countries, the optimal basket weights for Germany and United Kingdom are found to be less than the trade share weights. The opposite is true for United States. Moreover, the actual weights in the basket of Sweden are almost identical to those we have computed as optimal.
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