The Boom-Bust Cycle in Finland and Sweden 1984-1995 in an International Perspective
Posted: 16 Aug 2006
Date Written: December 13, 2006
This paper compares the boom-bust cycle in Finland and Sweden 1984-1995 with the average boom-bust pattern in industrialized countries as calculated from an international sample for the period 1970-2002. Two clear conclusions emerge. First, the Finnish-Swedish experience is much more volatile than the average boom-bust pattern. This holds for virtually every time series examined. Second, the bust and the recovery in the two Nordic countries differ markedly more from the international pattern than the boom phase does. The bust is considerably deeper and the recovery comes earlier and is more rapid. We explain the highly volatile character of the Finnish and Swedish boom-bust episode by the design of economic policies in the 1980s and 1990s. The boom-bust cycle in Finland and Sweden 1984-1995 was driven by financial liberalization and a hard currency policy, causing large pro-cyclical swings in the real rate of interest transmitted via the financial sector into the real sector and then into the public finances.
Keywords: Boom, Bust, Asset Price Cycles, Real Interest Rates, Financial Crisis, Finland, Sweden
JEL Classification: E32, E62, E63
Suggested Citation: Suggested Citation