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Optimum Currency Areas: The Case Of Iceland, Kristal Ford

Masters Theses

This paper applies Mundell's criteria of Optimum Currency Areas to Iceland. The three criteria examined are: the openness of Iceland with the European Monetary Union, the symmetry of shocks in Iceland and the European Monetary Union, and the wage flexibility and labor mobility of Iceland. In all three cases it is found that Iceland should be in the European Monetary Union. This paper then discusses three possible exchange rate arrangements for Iceland, which are keep their current exchange rate system, adopt the euro, and join the European Monetary Union. The conclusion for Iceland's exchange rate policy is to join the …