The Nordic Experience of Financial Liberalization
Edited by Lars Jonoug, Jaakko Kiander and Pentti Vartia
Thomas Hagberg and Lars Jonung INTRODUCTION1 In the 1990s the world economy was hit by a series of unusually deep crises, the first of which occurred in 1991–92 in Finland and Sweden. The depression in these two Nordic countries has much in common with those that occurred later in the decade in Mexico, South-East Asia, Russia, Brazil and Turkey. Although the downturn in economic activity in the early 1990s in Finland and Sweden is commonly regarded as exceptionally severe – associated with deep and lasting effects on the economy, institutions and policies of both countries – we lack systematic comparisons between the crises of the 1990s and other major episodes of crisis or depression. This chapter adds to our understanding of the turbulent 1990s by comparing the cost of the depression of the 1990s with the costs caused by the major crises since the 1870s in the two Nordic countries. We adopt an approach developed by IMF (1998) and extended by Bordo et al. (2001) where the cost of a crisis is estimated in terms of output growth foregone. In these two studies the output losses of a large number of crises are compared across countries and time. Here, by contrast, we focus only on the experience of Finland and Sweden, calculating the cost of crises using three measures: loss of real income growth, loss of industrial production growth and loss of employment growth. We cover the experience of World Wars I and II as well. This chapter is organized in...
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