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Macroeconomic shocks and the Nordic banking crises

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Macroeconomic shocks and the Nordic banking crises Powered By Docstoc
					Macroeconomic shocks
and the Nordic banking
        crises
     Macroeconomics, topics
 Economic  growth
 Unemployment

 Inflation

 Business cycles

 Government finances

 Balance of Payments
 Economic   growth, 3 % p.a.
 Unemployment, < 5 %

 Inflation, < 2 % p.a.

 Business cycles

 Government finances (better than

 -3% of GDP)

 Balance of Payments
 Finland,Sweden and Norway: a
  severe banking crisis in the early
  1990s
 Bank customers: rapidly increasing
  indebtness in the 1980’s
 Rapid  growth in bank lending
 Poorly regulated financial
  liberalization programme
 Just before the world-wide economic
  upswing
 The banks in Finland, Norway and
  Sweden were poorly capitalised as
  they faced deregulation
 which made them vulnerable to loan
  losses in case of adverse economic
  shocks
A  severe economic recession
 A vicious circle  bankruptcies and
  loan losses generate new
  bankruptcies  a banking crisis
 Why  economic crisis in Finland?
 Macroeconomics: C + I + G + (X-M)

 C = private consumption

 I = private investment

 G = public c + i

 X = export

 M = import
C  usually rather stable +2 -- +5%
 I usually fluctuation – 20 -- +20%

 G (countercyclical?)

 X, M usually fluctuation – 10--+10%
 In Finland during the crises years
  1990-1993
 C – since consumers were paying
  back the loans taken in late 1980‘s
 I – since firms made big investments
  in the late 1980‘s
 X – since DDR, Soviet Union!

 G ++ but …
 Highindebtness combined with
 negative macroeconomic surprises 
 banking crisis
 When the macroenvironment
 changes (i.e. finance market
 deregulation in 1980‘s), the „old“
 ways do not work any more (
 banking crisis)

				
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posted:9/22/2011
language:English
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