Depression in the north - boom and bust in Sweden and Finland, 1985-93

A comparison of the boom-and-bust cycle of Sweden and Finland during 198593 reveals remarkable similarities. We examine macroeconomic developments during the period with a special emphasis on asset market developments. The seeds of the crisis were »traditional» Nordic problems combined with the consequences of late deregulation of financial markets. We identify five factors that were present in both countries and that account for the depth of the downturn: an »ordinaly» cyclical downturn, a real interest rate shock, asset price deflation with balance sheet consolidation, financial fragility and slow structural adjustment. Differences in policy response are analyzed.