Lessons from the crisis in Finland and Sweden in the 1990s

This paper discusses the lessons of the Nordic financial crisis which hit Sweden and Finland in the beginning of the 1990s. The main causes of this exceptionally deep recession were the deregulation of the financial markets in the 1980s and the subsequent overheating, during which the asset prices and debts doubled. The consequences of the bursting of this financial bouble were currency and banking crises, collapsing asset prices, mass unenployment and large fiscal deficits. There are some lessons which can be learnt by analyzing these events, and they are presented in this paper. Among the lessons are the importance of asset prices and wealth effects to the stability of the whole financial system.