There was a time when the Scandinavian countries had a currency union of their own. However, today the Nordic countries have chosen difference monetary regimes. Sweden, Norway and Iceland have floating exchange rates and inflation targeting, while Finland has joined the euro zone and Denmark is pegging the krone to the euro.

So essentially we have three countries – the floaters – which have monetary sovereignty to set monetary conditions to achieve their stated monetary policy objectives and two – the peggers – which have given up monetary sovereignty and have “outsourced” monetary policy to the ECB in Frankfurt.

How has that played out during the Great Recession? The graph low give you a hint. The floaters are gren and the peggers are red.

There are obviously many reasons why the countries have performed so differently, but it is hard not to conclude that the monetary policy regimes have played a very important role in the length and depth of the crisis in each of the five Nordic countries.

By the way if you want a proper empirical analysis of the difference in performance of the floaters and peggers during the Great Recession then you should read this paper by Thomas Barnebaek,Nikolaj Malchow-Møller and Jens Nordvig.

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