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Economic Prosperity RecapturedThe Finnish Path from Crisis to Rapid Growth$
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Seppo Honkapohja, Erkki A. Koskela, Willi Leibfritz, and Roope Uusitalo

Print publication date: 2009

Print ISBN-13: 9780262012690

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262012690.001.0001

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Macroeconomic Policies before and during the Crisis and in the Upswing

Macroeconomic Policies before and during the Crisis and in the Upswing

(p.41) 3 Macroeconomic Policies before and during the Crisis and in the Upswing
Economic Prosperity Recaptured

Seppo Honkapohja

Erkki A. Koskela

Willi Leibfritz

Roope Uusitalo

The MIT Press

This chapter examines the impact on macroeconomic performance of monetary, exchange-rate, and fiscal policies as well as wage policies carried out in Finland from the mid-1980s to the late 1990s. It shows that while the crisis in the early 1990s was caused by external factors, in particular the breakdown of the neighboring Russian economy and insufficient safeguards after financial market liberalization, it was aggravated by mistakes in macroeconomic policy. Both the fixed exchange-rate policy and pro-cyclical fiscal policies increased fluctuations during the overheating period in the late 1980s and during the crisis period in the early 1990s. In contrast, macroeconomic policies were largely appropriate during the subsequent upswing period.

Keywords:   macroeconomic policy, Finnish economy, Finland, monetary policy, exchange rates, fiscal policy, wage policy

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