Kiss Me Deadly: From Finnish Great Depression to Great Recession

42 Pages Posted: 22 Oct 2014

See all articles by Adam Gulan

Adam Gulan

Bank of Finland - Research

Markus Haavio

Bank of Finland - Research

Juha Kilponen

Bank of Finland - Research

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 2014

Abstract

We investigate the causes of the Finnish Great Depression, 1990-1993. We find that the collapse of the overheated financial and banking sectors starting in 1989 was the trigger of the economic crisis. Foreign shocks, which include the collapse of trade with USSR in 1991, can account for at most about half of the slump, and these shocks occurred only when the economy was already in free fall. Also, the deleveraging and restructuring process of the financial system substantially prolonged the subsequent recovery. Our methodology involves estimating a structural VAR model with sign and exogeneity restrictions. Importantly, we are able to distinguish between financial shocks affecting the demand for intermediated loans and those shifting the loan supply curve. Hence we also contribute to the discussion on which financial shocks actually matter.

Keywords: business cycles, great depressions, financial shocks, sign restrictions, Finland

JEL Classification: E32, E44, O52

Suggested Citation

Gulan, Adam and Haavio, Markus and Kilponen, Juha, Kiss Me Deadly: From Finnish Great Depression to Great Recession (October 15, 2014). Bank of Finland Research Discussion Paper No. 24/2014. Available at SSRN: https://ssrn.com/abstract=2512161 or http://dx.doi.org/10.2139/ssrn.2512161

Adam Gulan (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Markus Haavio

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Juha Kilponen

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2847 (Phone)
+358 10 831 2294 (Fax)

HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/kilponen_juha/

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