Off Gold and Back Again: Finnish and Swedish Monetary Policies1914–1925

Tarmo Haavisto and Lars Jonung

in Banking, Currency, and Finance in Europe Between the Wars

Published in print September 1995 | ISBN: 9780198288039
Published online November 2003 | e-ISBN: 9780191596230 | DOI:
 Off Gold and Back Again: Finnish and Swedish Monetary Policies1914–1925

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Sweden went back to gold at the pre‐war parity, whereas Finland returned at the existing rate, accepting the depreciation of the markka that had occurred over the war and early post‐war years. The authors use a quantity‐theory framework to investigate the results of the divergent exchange rate and monetary policies followed by the two countries. The Swedish economy was forced to undergo a severe contraction, while Finland escaped the need for such an adjustment at the cost of a higher rate of inflation, and enjoyed a post‐war boom on the basis of its devalued currency. However, this was not the result of a deliberate choice on the part of the Finnish authorities: it was rather that the central bank lacked the resources needed to support the markka.

Keywords: boom; central bank; contraction; depreciation; exchange rate; Finland; inflation; monetary policy; quantity theory; Sweden

Chapter.  11323 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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