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Modeling great depressions: the depression in Finland in the 1990s

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  • Juan Carlos Conesa
  • Timothy J. Kehoe
  • Kim J. Ruhl

Abstract

This article is a primer on the great depressions methodology developed by Cole and Ohanian (1999, 2007) and Kehoe and Prescott (2002, 2007). We use growth accounting and simple dynamic general equilibrium models to study the depression that occurred in Finland in the early 1990s. We find that the sharp drop in real GDP over the period 1990?93 was driven by a combination of a drop in total factor productivity (TFP) during 1990?92 and of increases in taxes on labor and consumption and increases in government consumption during 1989?94, which drove down hours worked in Finland. We attempt to endogenize the drop in TFP in variants of the model with an investment sector and with terms-of-trade shocks but are unsuccessful.

Suggested Citation

  • Juan Carlos Conesa & Timothy J. Kehoe & Kim J. Ruhl, 2007. "Modeling great depressions: the depression in Finland in the 1990s," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 31(Nov), pages 16-44.
    • Handle: RePEc:fip:fedmqr:y:2007:i:nov:p:16-44:n:v.31no.1
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    More about this item

    Keywords

    Depressions;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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