# The Finnish Great Depression of the 1990s: reconciling theory and evidence

**Published:** 2018-06-15  
**Categories:** Academic Publications, Publications  
**URL:** https://www.etla.fi/en/publications/the-finnish-great-depression-of-the-1990s-reconciling-theory-and-evidence-b-e-journal-of-macroeconomics/

## Abstract

This paper reconciles quantitative macroeconomic theory of the Finnish Great Depression and the empirical evidence. The main controversy is that the existing theoretical work assigns a larger role for the collapse of the trade with the Soviet Union than the empirical evidence would suggest.

This paper argues that explaining the Finnish crisis warrants a model with involuntary unemployment, and that the collapse resulted mainly from increased financial constraints, not the Soviet trade collapse.

While it has been argued and that a large Soviet-trade contribution would result from costly reallocation of resources away from the Soviet sector, and trade-induced income effects that hit the consumption in the domestic sector, this paper finds it hard to reconcile them with the actual evidence. The economic collapse was wide-spread, and the domestic sector collapse reflects decline in investment rather than consumption.

*B.E Journal of Macroeconomics (forthcoming).*

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## Additional Information

**Kirjoittajat:** Kuusi, Tero

**Kansikuva:** No

**Lataa Pdf:** No

**Key Words:** business cycles, depression, transition, industrial policy

**Jel:** E32, F41, P20

**Paivays:** 15.06.2018

**Kieli:** en

**Sarja:** Other articles

https://www.degruyter.com/view/j/bejm.ahead-of-print/bejm-2018-0026/bejm-2018-0026.xml

**Saatavuus:** 2