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American Economic Review: Vol. 102 No. 4 (June 2012)

AER Volume. 102, Issue 4 | Previous ArticleNext Article

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The Finnish Great Depression: From Russia with Love

Article Citation

Gorodnichenko, Yuriy, Enrique G. Mendoza, and Linda L. Tesar. 2012. "The Finnish Great Depression: From Russia with Love." American Economic Review, 102(4): 1619-44.

DOI: 10.1257/aer.102.4.1619

Abstract

Why did Finland experience, in 1991-1993, the deepest recession observed in an industrialized country since the 1930s? Using a dynamic general equilibrium model with labor frictions, we argue that the collapse of the Soviet-Finnish trade was a major contributor to the contraction. Finland's experience mirrors that of the transition economies of Eastern Europe, which suffered similar deep recessions coupled with institutional changes. By focusing on the Finnish case, we isolate the effects of the Finnish-Soviet trade collapse and shed new light on the sources of recessions in transition economies.

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Authors

Gorodnichenko, Yuriy (U CA, Berkeley)
Mendoza, Enrique G. (U MD)
Tesar, Linda L. (U MI)

JEL Classifications

E32: Business Fluctuations; Cycles
F14: Country and Industry Studies of Trade
F41: Open Economy Macroeconomics
P33: Socialist Institutions and Their Transitions: International Trade, Finance, Investment, and Aid