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Spinning out of control, Iceland in crisis

Author

Listed:
  • Thorolfur Matthiasson

    (University of Iceland ,Reykjavik, Iceland)

Abstract

Within few days in October 2008 some 85% of the Icelandic bank-sector collapsed, as did the Icelandic króna. Many non-financial firms declared bankruptcy or decimated their workforce. Inflation skyrocketed as did unemployment, the other ingredient in the misery index. This paper records how well-intended policies aimed at making life easier for house-owners, people living in de-populating areas, and taxpayers turned into misfortune. The mixture of lax fiscal policy, tight monetary policy, inflation targeting, and running the smallest floating currency in the world with inadequate foreign reserves proved to be dangerous.

Suggested Citation

  • Thorolfur Matthiasson, 2008. "Spinning out of control, Iceland in crisis," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 34, pages 1-3.
    • Handle: RePEc:noj:journl:v:34:y:2008:p:3
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    File URL: http://www.nopecjournal.org/NOPEC_2008_a03.pdf
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    References listed on IDEAS

    as
    1. Dani Rodrik, 2006. "The social cost of foreign exchange reserves," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 253-266.
    2. Mr. Christoph Duenwald & Nikolay Gueorguiev & Ms. Andrea Schaechter, 2005. "Too Much of a Good Thing? Credit Booms in Transition Economies: The Cases of Bulgaria, Romania, and Ukraine," IMF Working Papers 2005/128, International Monetary Fund.
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    Cited by:

    1. Kristín Helga Birgisdóttir & Tinna Laufey Ásgeirsdóttir, 2017. "Macroeconomic conditions and population health in Iceland," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 37(25), pages 769-852.
    2. Howden, David, 2013. "The Rise and Fall of the Icelandic Economy," MPRA Paper 79603, University Library of Munich, Germany.
    3. Yavuz YILDIRIM, 2019. "Democratic Exit from the Crisis: The Developments in Iceland Politics between 2008-2017," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(39).
    4. Thorvaldur Gylfason, 2014. "Iceland: How Could This Happen?," CESifo Working Paper Series 4605, CESifo.
    5. Þórólfur Matthíasson, 2015. "Six myths and few facts, Recovery of the Icelandic economy post October 2008," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 40, pages 1-1.
    6. Federico Sturzenegger, 2019. "Macri´s Macro: The meandering road to stability and growth," Working Papers 135, Universidad de San Andres, Departamento de Economia, revised Oct 2019.

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    More about this item

    Keywords

    Icelandic Bank Crisis 2008; Inflation targeting; Macroeconomic imbalance; Privatization; Overinvestment; Stock Market Collapse; Conflicting Economic Goals.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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