Do monetary unions make economic sense? Evidence from the Scandinavian Currency Union, 1873-1913

Popular propositions as to what constitutes a successful single currency area are examined by looking at the Scandinavian Currency Union (1873-1913) formed by Denmark, Norway and Sweden. Applying a frequently used indicator of the desirability of monetary union, we study the symmetry of country-specific structural shocks (measured net of the non-Scandinavian influence) in these three countries. It is found that country-specific shocks are not highly symmetric. This conclusion is also supported by the absence of clear-cut differences between the pattern of structural shocks in Belgium and structural shocks in the Scandinavian countries. This suggests that the three Scandinavian countries did not form an optimum currency area during the period 1873-1913. JEL classification: F15; F33; N13.