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Finnish monetary and foreign exchange policy and the changeover to the euro

  • Korhonen, Tapio

    (Bank of Finland)

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    This paper presents the salient aspects of Finland’s monetary and exchange rate policies during the run-up to monetary union in the 1990s. In the course of slightly more than a decade, Finland’s monetary and exchange rate policies were thoroughly revamped. The remnants of heavy regulation were removed and a market-based financial system was put in place. There were serious problems associated with the liberalisation process in the early part of the decade, the most noteworthy being an economic and banking crisis. Finland’s financial system nonetheless developed rapidly and became a more integrated part of the global system. As regards exchange rate policy, almost all varieties of exchange rate regime were tried. A fixed rate regime based on a currency index fell apart in the early part of the decade and was replaced by a floating rate system. Later, in 1993, this was combined with an inflation-targeting monetary policy strategy. At the start of 1995 Finland joined the European Union, and in October 1996 the markka was joined to the EU’s Exchange Rate Mechanism. The improvement in financial and price stability that followed the economic crisis facilitated the adjustment to the euro area’s single currency and single monetary policy at the start of 1999, which was accomplished without serious problems.

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    Paper provided by Bank of Finland in its series Research Discussion Papers with number 25/2001.

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    Length: 51 pages
    Date of creation: 03 Dec 2001
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2001_025
    Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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    1. Seppo Honkapohja & Erkki Koskela, 1999. "The economic crisis of the 1990s in Finland," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 399-436, October.
    2. Herrala, Risto, 2001. "An assessment of alternative lender of last resort schemes," Research Discussion Papers 1/2001, Bank of Finland.
    3. Ehrmann , Michael & Ellison, Martin & Valla, Natacha, 2001. "Regime-dependent impulse response functions in a Markov-switching vector autoregression model," Research Discussion Papers 11/2001, Bank of Finland.
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