Finland: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix examines inflation and wage dynamics in Finland. The paper discusses the data set used (quarterly data covering from 1975 to 1995) and the statistical properties of the relevant time series. It presents the model and the empirical estimates, and provides an outlook for consumer price index and nominal wage inflation for 1996:Q1–2001:Q4. The paper examines the determinants of the equilibrium real exchange rate, and also analyzes the Finnish banking system and the credit crunch hypothesis.

Abstract

This Selected Issues paper and Statistical Appendix examines inflation and wage dynamics in Finland. The paper discusses the data set used (quarterly data covering from 1975 to 1995) and the statistical properties of the relevant time series. It presents the model and the empirical estimates, and provides an outlook for consumer price index and nominal wage inflation for 1996:Q1–2001:Q4. The paper examines the determinants of the equilibrium real exchange rate, and also analyzes the Finnish banking system and the credit crunch hypothesis.

III. The Finnish Banking System and the Credit Crunch Hypothesis 1/

l. Introduction

The purpose of this paper is to provide a survey of the conditions of the banking system in Finland and to evaluate whether there has been a credit crunch in the aftermath of the banking crisis of 1992–93. As background, the Finnish banking industry underwent considerable changes in the second half of the 1980s. The period was marked by increased competition in financial services, economic deregulation, the removal of cross-border restrictions on capital flows, and financial innovation. After a sharp credit boom, it also proved to be a period leading to financial fragility, as lower asset quality and declining profitability deteriorated banks’ balance sheets to the point where the Government in the early 1990s had to support some of the largest banks to preserve financial stability. As a result of problem assets, bank profitability deteriorated sharply, and income from financial operations declined due to the loss of interest payments on nonperforming assets and growing loan losses. Subsequent to the banking crisis, the loans to the private sector by the banking sector declined significantly, leading to concerns that the weak conditions of the banks brought about a credit crunch.

A credit crunch is generally defined as a decline in the supply of credit resulting from a reduced willingness to lend by banks that is not reflected in higher lending rates. Most factors that limit credit supply by banks also affect alternative sources of financing. However, there are certain factors which are unique to banks, such as increased regulatory oversight and banks’ own reaction to deterioration of bank asset values and profitability. In this framework, credit crunch results from rational profit maximizing behavior of lenders under asymmetric information. More specifically, banks may not be willing to increase the interest rate enough to eliminate excess demand if the adverse selection and incentive effects of such an increase lead to decreasing expected profits.

Understanding whether weak business credit growth is related to a credit crunch or to weak demand for credit is important from a policy perspective. If the supply of credit or the willingness to lend play an important role, then structural measures (e.g., regulatory changes and intervention to strengthen the banking system) may be needed to remove the obstacles to growth. With this in mind, a disequilibrium model of credit supply and demand is estimated in an attempt to identify the factors determining business credit. The results of the empirical analysis suggest that even though there may be some evidence of a credit crunch immediately after the banking crisis, since 1993 the reduction in bank lending has been mainly in reaction to a decline in credit demand, rather than to a credit crunch.

The rest of the paper is organized as follows. Section 2 provides a review of the relevant empirical literature. Section 3 reviews the financial market developments in Finland during 1980–95. Sections 4 and 5 outline the model and the estimation methodology, respectively. Section 6 presents the empirical results. Concluding remarks are provided in Section 7. Appendix 1 provides data sources.

2. Literature review

The flow of credit results from factors which affect both the supply and demand for credit. Thus, the observed decline in the volume of credit may be the result of a decline in willingness to lend or a weak demand for loans. 1/ In the relevant empirical work on this topic, disequilibrium econometric models have been used to establish the empirical significance of a credit crunch. The results of Laffont and Garcia (1977) for Canada, Sealy (1979) for the United States, Ito and Ueda (1981) for Japan and Kugler (1987) for West Germany and Switzerland indicate large disequilibrium situations in the market for bank loans. In contrast, the empirical results do not show any evidence of disequilibrium for the United States in Ito and Ueda (1981), for the United States and United Kingdom in Kugler (1987) and for Australia in Blundell-Wignall and Gizycki (1994). Using data for different states of the U.S. Bernanke and Lown (1991) conclude that bank capital limited banks’ credit supply (supporting the “credit crunch” hypothesis”).

Following the approach of Bernanke and Lown (1991), Solttila and Vihriälä (1992) find a very small, but statistically significant, negative relationship between the growth of lending by individual Finnish savings banks in 1991 and their projected capital adequacy indicator. However, as reported by Vihriälä. (1996a) the analysis suffers from a very inadequate treatment of demand factors, and there is no attempt to account for differences in borrower quality.

In a recent study, Saarenheimo (1995) analyzes the linkages between the recent collapse in investment and the decline in bank credit in Finland. The main question he addresses is whether the decline in bank credit and investment merely reflects the fall in the demand for credit or whether the slump in investment is due to the tightening of bank credit and firms’ inability to raise external funds. He finds some evidence that the latter may be the case in Finland. His first argument is that the margin between the loan rate linked to the interbank rate and the three-month interbank rate shows an upward shift around 1990. He notes that the fact that there has not been any reduction in interest margins seems to imply that the weak demand for loans alone does not explain the sluggishness in the credit market. Saarenheimo’s second argument is that the commercial paper issued by firms continued to grow for several years after the decline in bank loans. This implies that firms may have substituted this alternative source of funds in response to a decline in access to bank credit. Furthermore, debt financing became less advantageous as tax deductibility was reduced. He also reports that according to surveys and various informal sources, small and medium-sized firms have faced problems in obtaining bank loans because of insufficient collateral.

Vihriälä (1996a) reports that in public discussion credit crunch due to capital shortages of batiks, risk aversion by bank managers, and regulatory tightening have been blamed for the sharp recession and the slow recovery experienced in Finland. Based on aggregate data, he concludes that the tightening of capital regulations, the substantial depletion of bank capital, and changed risk attitudes and disturbances caused by restructuring are possible explanations of the negative supply shocks. In particular, the results appear to confirm the existence of a credit crunch due to bank capital problems in 1991–92.

In another study, Vihriälä (1996c) analyzes bank lending in the early 1990s for 393 savings and cooperative banks and concludes that the findings do not support the hypothesis of a general credit crunch caused by inadequacy of capital. However, some banks, especially cooperative banks, with potentially weak capital base appear to have accelerated their credit expansion (“gamble for resurrection”). Vihriälä also notes that the weak borrower quality contributed to the contraction of bank lending in 1991–92.

3. Finland: An overview of financial sector developments (1986–95)

The Finnish banking sector underwent considerable changes following the financial liberalization which took place from the mid-1980s. In August 1986, the Bank of Finland totally abolished the regulation of banks’ average lending rates, and companies were allowed to raise foreign credit either through a bank or directly from foreign sources, with no quantitative restrictions. 1/ Similar to the experience of other Nordic countries, such as Norway and Sweden, Finland experienced a pronounced and long-lived boom-and-bust cycle. The significant improvement of terms of trade due to the oil price decline and the surge in world market prices for paper and pulp products in the late 1980s, as well as the easier access to credit led to a sharp increase in domestic demand. The domestic boom, also characterized by higher investment activity, was reinforced by the rapid expansion of credit that fueled speculation in shares and real estate, which in turn raised wealth levels and thus made additional borrowing possible.

Prior to the deregulation of financial markets from 1986, the sheltered banking environment, which was characterized by limited price competition, fostered a business mentality and strategies aimed at long-term relationships with clients. It also allowed decentralized credit decision making (often at the branch level) and lax credit risk management, and encouraged cross-subsidization between various banking services. Since deposit rates were regulated, banks competed for market share by building extensive branch networks. Profitability was largely assured by the interest rate regulations and lack of competition, and most measures of bank profitability remained quite stable. More generally, banking regulation appears to have supported cost structures in banking that would not have been viable in a deregulated environment.

Banks’ loan losses during the post-deregulation era were very small. At the same time, banks’ capital levels were also low. Thus, they had little cushion against loan losses, making them vulnerable to adverse economic shocks. Taken together, the reduced regulatory costs that were associated with deregulation and the low equity ratios provided a strong incentive for banks to accommodate the surge in credit demand and to bear more risk.

By the late 1980s, the increased borrowing had pushed private indebtedness to unsustainable heights. Tax reforms, in combination with a tightening of monetary policy and lower inflation, raised real after-tax lending rates noticeably and contributed to a sharp drop in property and share prices. In response, households began to consolidate their financial positions by cutting back on consumption, and firms decreased investment considerably (Chart 11). As a result, Finland entered a deep recession that in turn accelerated the asset price deflation. Compounding the initial domestic demand shock was a collapse of trade with CMEA countries in 1990–91, and a drop in paper and pulp prices in die world market. In addition, the decline in investment by most European countries adversely affected exports by the Finnish metal industry. Furthermore, interest rates increased in most European countries, including, Finland, in the aftermath of the German unification process.

CHART 11
CHART 11

FINLAND: GROSS INVESTMENT/GDP

(In percent)

Citation: IMF Staff Country Reports 1996, 095; 10.5089/9781451813128.002.A003

Source: Data provided by the Central Bank of Finland.

With the collapse of asset prices and the onset of a severe recession, bank loan losses began to mount rapidly in the early 1990s. Given the thin capitalization of banks, the high loan losses impaired greatly the financial position of the banking system. The loan losses of the Finnish banks—net write-offs on loans and guarantees—peaked at 4.8 percent of total lending in 1992, compared to 0.5 percent in 1989. Total nonperforming loans declined from about 12.5 percent in 1993 to about 6 percent in 1995. While losses on real estate loans represented a significant share of the overall problem, losses on foreign-currency denominated loans were also large.

Developments in the Finnish banking industry in the aftermath of the banking crisis of the early 1990s have been mixed (Table 9). There have been several steps forward. The credit and guarantee losses of the Finnish banking system declined from about 4 percent of total lending in 1994 to about 2 percent in 1995. The stickiness of lending rates vis-à-vis the money market rates has declined significantly since 1992. 1/ The proportion of loans tied to the base rate—which is determined by the Parliamentary Supervisory Board—has dropped from more than 90 percent in early 1988 to 23 percent in 1995, reflecting the sharp increase in loans tied to banks’ prime rates and HELIBOR (Chart 12). Capital adequacy also improved. To cover their losses and safeguard their capital adequacy, the banks have strengthened their equity through share issues and using instruments under tier-two capital which helped raise the capital adequacy ratio well above the required 8 percent. 2/ During 1994–95, the banks—excluding the asset management companies—did not need additional government support in order to maintain capital adequacy and no support is expected in the foreseeable future. 3/

Table 9.

Finland: Key Figures for the Deposit Banks, 1992–95

(In billions of Finnish markkaa)

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Source: Data provided by the Central Bank of Finland.

Excluding Siltapankki, Savings Bank of Finland (SBF) and Arsenal.

CHART 12
CHART 12

FINLAND: INTEREST RATE LINKAGES IN BANKS’ MARKKA LENDING

(In percent)

Citation: IMF Staff Country Reports 1996, 095; 10.5089/9781451813128.002.A003

Source: Data provided by the Bank of Finland.

Despite these positive developments and prospects, Finnish banks still face significant challenges. The aggregate banking sector posted negative results for 1995. Operating profits before credit and guarantee losses fell consecutively in the last two years, by about 15 percent and 20 percent in 1994 and 1995, respectively. The ratio of net interest income to assets is the lowest among Nordic countries (less than 2 percent compared to 3 percent and above for the other countries) while the ratio of expenses to total assets is the highest.

The high operating cost of banks reflect their excessive branch network and oversized staff inherited from the past. Some improvement is expected in the near future. Reflecting the restructuring measures taken by banks after the banking crisis 9 the number of bank staff and bank branches have been reduced considerably, but these developments have not yet been reflected in the trend of expenses. This mainly reflects the one-off costs of closing branches, severance payments, and other restructuring related items; it is expected that the savings from restructuring will become apparent in 1997–98. However, there is still a need to streamline operations, cut costs, and reduce bank staff. The restructuring process of the Finnish banking system is still continuing and the banks are planning to take additional measures by end-1997.

Restructuring efforts in the aftermath of the banking crisis have led to significant changes in the structure of the Finnish banking sector (Table 10). At end-1995, the three largest banks accounted for about 80 percent of total assets of the deposit banks. The assets of the largest bank, Merita Bank—which was formed by a merger of the two major commercial banks in mid-1995—accounted for about 50 percent of total assets.

Table 10.

Finland: Bank Structure

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Source: Data provided by the Central Bank of Finland.

The reason for the sharp decline in the number of banks is that most of the savings banks merged to form the Savings Bank of Finland.

The low level of net interest income, also a major problem, is related mostly to the weakness of lending activity. This is because the most profitable component of banks’ portfolios (bank loans) has been shrinking as a ratio to bank deposits. This brings us to the issue of why bank lending has been so slow in recent years.

4. The model

In order to evaluate whether there was a credit crunch in the aftermath of the banking crisis in Finland, this paper estimates a disequilibrium model of a system of equations for the supply of and demand for business credit. Following the work by Laffont and Garcia (1977) and Blundell-Wignall and Gizycki (1994), the supply and demand for business credit is modelled as follows (see Appendix 1 for a discussion of the data).

a. The credit supply equation

The supply of business loans (Ls) is determined by a portfolio management approach. In this framework, given expectations on yields of different assets, the bank takes into account the available resources in deciding on the amount of business credit to supply. In the specification of the loan supply function used in this paper, the available resources are represented by total deposits (D). In addition, the stock market’s assessment of the relative expected profitability of banks is included in order to determine the ease with which banks can raise new capital to fund loans in the following period. The banking sector share price relative to the market average (spb/sp) is used as a proxy for the stock market’s assessment. Both D and (spb/sp) increase the resources available to the bank and are expected to have a positive effect on the supply of loans.

The rate on short-term bank loans (i1) is used to denote the profitability of banks’ lending activities. This variable is expected to have a positive effect on the supply of business credit. 1/

The market capitalization of corporate equity (Ecorp) is used to represent the net worth of the corporate sector and the collateral available to banks, and is expected to have a positive sign.

To account for a cyclical risk premium, the difference between the lending rate and the money market rate is used (i1 - imn). The higher the loan rate relative to the money market rate, the higher are the cyclical agency costs and thus the higher is the risk premium. As in Bernanke and Gertler (1989), it is assumed that agency costs decline in booms and rise in recessions. These include costs associated with adverse selection and moral hazard which arise due to asymmetric information between borrowers and lenders.

Two alternative proxies are used to represent the state of the overall economic environment. First, the expected inflation rate (∏e) is predicted to have a negative effect on the credit supply of banks. The second variable is the expected industrial production (ye), formulated with a distributed lag, which is expected to have a positive sign.

As in Blundell-Wignall and Gizycki (1994), the variance of bank share prices (σ) relative to the market average is included as a variable reflecting risks specific to the banking sector. A higher σ, i.e. higher banking risks are expected to lead to a decline in the supply of business credit by banks.

Thus, the following specification for the credit supply equation was used for estimation purposes:

Lt=α0+α1Dt1+α2(spbsp)t1+α3i1+α4Et1corpα5(i1imm)tα6πte+α7yteα8σt(1)

b. The credit demand equation

As discussed in Laffont and Garcia (1977), it is important not to impose rationing on demand by including explanatory variables which would reflect an eventual rationing such as the volume of actual investment. To avoid this problem, the volume of expected fixed investment is used as an explanatory variable. 1/ This variable, (Ie), is expected to have a positive effect on the demand for business credit.

The demand for business credit is expected to depend negatively on the lending rate (i1), as bank customers would delay investment plans during periods in which the lending rates for a given rate of expected inflation are higher. As higher level of inflation would erode the value of nominal debt, the demand for credit depends positively on the expected rate of inflation (∏e). Similar to the effect on credit supply, expected growth proxied by the distributed lag on the index of industrial production, ye, is expected to have a positive effect on demand for credit.

Therefore, the following specification for the credit demand equation was used for estimation purposes:

Ltd=β0β1i1,t+β2Ite+β3πte+β4yte(2)

5. Empirical methodology

Simplifying equations (1) and (2), the model considered in this paper consists of the following equations:

Lts=X1/α+u1t(3)
Ltd=X2t/β+u2t(4)

where Ls denotes quantity of business credit supplied, Ld quantity of business credit demanded, X1t and X2t denote variables that influence supply and demand respectively, and u1t and u2t are the residuals.

Allowing for the possibility that the price of credit is not perfectly flexible and rationing occurs, the disequilibrium hypothesis is formulated as follows:

Lt=min(Lts,Ltd)(5)

where Lt is the actual quantity of business credit observed during period t, As shown by Maddala and Nelson (1974), in the absence of any information concerning the price adjustment process and assuming that the errors are normally distributed random variables, the model itself allows the determination of the probabilities with which each observation belongs to the demand or supply equation. Maddala and Nelson discuss the appropriate maximum likelihood method for this class of models which resembles the method suggested by Tobin (1958) for the estimation of models with limited dependent variables. The log likelihood function (ML) is defined as follows:

ML=t=1nlogGtwhereGt=f1(Lt)*F2(Lt)+f2(Lt)*F1(Lt)(6)

where

f1(Lt)=12πσ1exp[12σ12(LtαX1t)2],f2(Lt)=12πσ2exp[12σ22(LtβX2t)2],(7)F1(Lt)=12πσ1Ltexp[12σ12(LtsαX1t)2]dLts,F2(Lt)=12πσ2Ltexp[12σ22(LtdβX2t)2]dLtd

Using the Newton-Raphson iterative procedure, the log likelihood function shown in equation (6) is used to obtain the maximum likelihood estimates based on monthly data from 1981 to 1995.

6. Estimation results

The estimation results are shown in Table 11. As the Finnish banking sector was fully liberalized in August 1986, equations (1) and (2) are estimated for the periods prior to and after the liberalization. 1/

Table 11.

Finland: Estimation Results 1/

Pre-Deregulation Period Post-Deregulation Period

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The asterisks, * and **, denote significance at 95% and 90% confidence intervals, respectively.

In the loan supply equation, the lending rate has the expected positive sign for both periods; the effect of this variable is stronger in the post-deregulation period. Deposits have the expected positive signs for the post-deregulation period, while they are insignificant for the pre-deregulation period. This may imply that the deposits became more binding in the aftermath of the deregulation due to the expansionary credit policy of the banks. The relative share price index, proxying for the ease with which banks can raise new capital, has the expected positive sign in both periods; as would be expected the effect, of this variable is stronger in the period after the deregulation.

The market capitalization of corporate equity, proxy for the collateral available to banks, enters the equations with the expected positive sign with a higher coefficient in the post-deregulation period. The equations were also estimated for the sub-period 1991–95. The results are comparable to the post-deregulation results; most variables have similar coefficients except the coefficient of the market capitalization variable which becomes stronger suggesting that banks paid more attention to borrower quality in the aftermath of the banking crisis. 2/

The effects on loan supply of the proxies for the state of the economy, expected inflation and output, are only significant for the post-deregulation period. The risks specific to the banking sector, represented by the variance of bank share prices relative to the market average, does not appear to have an important explanatory power. The difference between the lending rate and the money market rate, a proxy used to represent cyclical agency costs, has the expected negative sign for the post-deregulation period.

Important determinants of the loan demand equation are lending rate and expected investment and both have the expected signs. Output does not appear to have a significant explanatory power in the loan demand equation for either of the subperiods. Inflation has a negative effect on loan demand in the post-deregulation period.

Based on the estimates obtained for the demand and supply of business credit in the post-deregulation period, the percentage by which demand exceeds supply is calculated and presented In Chart 13. The excess demand for business credit prevails even after the deregulation of financial markets (1986–88) which reflects the fact that the banks remained constrained with respect to their lending rates. As discussed in the background section, Finnish bank loans traditionally carried variable interest rates and all loan rates were tied to the base rate, which was set administratively by the Bank of Finland and tended to be relatively unresponsive to changes in market conditions. Also, the indebtedness of the corporate sector grew rapidly as corporations had been highly dependent on borrowing from financial institutions and, as in other countries with universal banking systems, relied heavily on debt financing. A major investment boom took place in Finland following the deregulation process, with the majority of investment activity occurring in residential and nonresidential construction, real estate and services.

CHART 13
CHART 13

FINLAND: Demand and Supply for Bank Credit

Citation: IMF Staff Country Reports 1996, 095; 10.5089/9781451813128.002.A003

Reflecting institutional changes as well as increased access to credit by borrowers, the period 1989–91 which is also a period of strong credit expansion, is characterized by alternating periods of excess supply and excess demand. In particular, in January 1990, the Bank of Finland allowed banks to set their own prime interest rates on borrowing and lending. Furthermore, banks were allowed to emit their own certificates of deposit. The development of money markets—besides changing the conduct of monetary policy—provided batiks with new funding opportunities, permitting more aggressive lending largely financed by bought funds instead of standard retail deposits. Similarly, the lifting of foreign exchange restrictions allowed banks to acquire funds abroad and to lend them as foreign-currency denominated loans to domestic customers.

It is interesting to note that in the crisis period (mid-1991 to 1993) the market for business credit was characterized by a significant degree of credit rationing. This is consistent with the findings of Vihriälä (1996a, 1996c).

In contrast, the period between 1993 and mid-1994 is characterized by weak demand for credit, perhaps reflecting the balance sheet consolidation efforts of borrowers and the tightened collateral requirements. The turnaround in domestic demand, which was particularly brisk in the first few months of 1994, as reflected in the sharp increase in the sales of consumer durable goods, seems to have led to a short-lived excess demand for capital during late 1994. During this period, increases in corporate sector’s profitability, reduced indebtedness of the sector and lower interest rates contributed to a 22 percent rise in machinery and equipment investment. Since then there is no further evidence of credit rationing.

The model predicts more or less an equilibrium situation in the credit market for the second half of 1995 and a slight increase of credit demand over supply. This finding is consistent with recent survey results in which only 10 percent of firms in the manufacturing sector and 8 percent of firms in the services sector—including small and medium sized firms—reported financing difficulties.

7. Conclusion

In this paper, the empirical significance of a credit crunch in Finland following the banking crisis was analyzed using monthly data on financial sector indicators. The results of the disequilibrium analysis for business credit suggest that the marked reduction in bank lending during the 1990s has been mainly in reaction to a cyclical decline in credit demand, reflecting partly the high level of indebtedness of the borrowers. It also appears that banks have become less willing to supply credit during periods associated with a deterioration in asset quality, erosion of rents accruing to banks due to declining regulatory protection from competition, as well as a need to increase capital adequacy levels. The episodes of a reduction of supply relative to demand, such as in 1994, has been accompanied by a rise in the spread between the bank lending rate and the marginal cost of bank funding. Survey results provide some evidence that banks increased collateral requirements during 1994, tightening nonprice credit terms. However, more recent surveys suggest that this process has stopped and that the percentage of firms which face difficulty in accessing credit has declined to less than 10 percent. In sum, the current situation in the Finnish credit market does not seem to suggest the presence of a credit crunch.

APPENDIX I: Description of Data

This appendix provides the description of the data used in the empirical analyses.

Credit to business sector by banks: Monthly data on domestic currency and foreign currency lending to the business sector. Source: Bank of Finland.

Lending rate: Monthly data on the weighted average of the lending rate linked to different rates. Source: Bank of Finland.

Deposits: Monthly data on total deposits. Source: Bank of Finland.

Corporate net worth: Market capitalization of listed equities. Annual data was extrapolated using seasonal adjustment variables. Source: Bank of Finland.

Inflation: Monthly data on the log of the Finnish consumer price index. Source: IFS (line 64), International Monetary Fund.

Relative share price index: Monthly data for the ratio of share price index for the banking sector relative to the stock market average. Source: Bank of Finland.

Interest differential: Monthly data for the difference between the lending rate and the 3-month HELIBOR rate. Source: Bank of Finland.

Expected investment: Quarterly data on survey results on expected investment by businesses. The data was extrapolated using seasonal adjustment variables. Source: Bank of Finland.

STATISTICAL APPENDIX

Table 1.

Finland: national Accounts Summary, 1992-96

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Sources: Statistics Finland, Revised National Accounts; Ministry of Finance, Revised National Budget May 1996: data provided by the Finnish authorities.

Official projections.

Including the statistical discrepancy.

Changes in percent of GDP in the preceding year.

Table 2.

Finland: National Income and Household Disposable Income, 1992-96

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Sources: Statistics Finland, Revised Rational Accounts: Ministry of Finance, Revised national Budget May 1996: data provided by the Finnish authorities.

Official projections.

Household saving as a percentage of disposable income.

Deflated by the private consumption deflator.

Households’ outstanding debt at end of period as percent of disposable income.

Table 3.

Finland: Gross Fixed Investment, 1992-96

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Sources: Ministry of Finance, National Budget February 1996, and data provided by the Finnish authorities.

Official projections.

Table 4.

Finland: Financial Balances, 1992-96

(In percent of GDP)

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Sources: Ministry of Finance, Revised National Budget May 1996: and data provided by the Finnish authorities.

Official projections.

Includes semi-public pension funds.

Table 5.

Finland: Gross Domestic Product by Sector of Origin, 1992-96

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Sources: Ministry of Finance, Revised national Budget May 1996. and data provided by the Finnish authorities.

Preliminary estimates as of February 1996.

Official projections.

Including hotels and restaurants.

Including insurance and business services.

Including nonprofit institutions and domestic services of households.

Table 6.

Finland: Labor Force, Employment, and Participation Rate, 1992-96

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Sources: Ministry of Finance, Revised National Budget May 1996; and data provided by the Finnish authorities.

Official projections.

Ages 15 to 74 years.

Ages 15 to 24 years.

Table 7.

Finland: Wages, Costs, and Prices, 1992-96

(Annual percentage changes)

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Sources: Bank of Finland Bulletin; Ministry of Finance, Revised National Budget May 1996: and data provided by the Finnish authorities.

Official projections.

Adjusted for the consumer price index.

Total wage and salary earnings and employers’ social insurance contributions from the national accounts, divided by hours worked. Thus, beside earnings and insurance contributions, compensation includes fringe benefits, overtime pay, and the effects of shifts in the structure of employment.

Index of compensation divided by a volume index of production.

Table 8.

Finland: Central Government Cash Revenue and Expenditure, 1992-96

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Source: Ministry of Finance, National Budget February 1996: data provided by the Finnish authorities; Bank of Finland Bulletin.

Official estimates.

Funds close to the central government sector but normally not consolidated with the central government budget.

Table 9.

Finland: Central Government Revenue and Expenditure, 1992-96 1/

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Sources: Ministry of Finance, Economic Survey 1996: and data provided by the Finnish authorities.

On a national accounts basis.

Official estimates.

Imputed social insurance contributions, current transfers from other domestic sectors and transfers from abroad from 1995 onward.

Mainly interest expenditure.

Including purchases of land and changes in inventories.

Table 10.

Finland: Municipalities’ Revenue and Expenditure, 1992-96 1/

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Sources: Ministry of Finance, Economic Survey 1996; and data provided by the Finnish authorities.

On a national accounts basis.

Official estimates.

Imputed social insurance contributions and casualty insurance benefits.

Casualty insurance premiums, pension expenditure and interest.

Includes purchases of land and changes in inventories.

Table 11.

Finland: Social Security Funds’ Revenue and Expenditure, 1992-96 1/

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Sources: Ministry of Finance, Economic Survey 1995: and data provided by the Finnish authorities.

On a national accounts basis.

Official estimates.

Casualty insurance premiums, imputed social insurance contributions and other current transfers from the private sector.

Interest and other comparable expenditure and insurance claims.

Includes purchases of land and change in inventories.

Table 12.

Finland: General Government Finances, 1992-96 1/

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Sources: Ministry of Finance, National Budget February 1996: and data provided by the Finnish authorities.

On a national accounts basis.

Official estimates.

Includes purchases of land and changes in inventories.

EMU definition.

Table 13.

Finland: Money Market Rates and Rates Applied by the Bank of Finland, 1992-96

(In percent: average of daily observations last month of quarter

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Sources: Bank of Finland, Bulletin: and data provided by the Finnish authorities.

Prior to July 1992, both the call money deposit rate and the liquidity credit rate (then named the call money credit rate) were set by the Bank of Finland, whereas since July 1992 both rates are tied to the tender rate.

Table 14.

Finland: Monetary Survey, 1992-96

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Sources: IMF, International Financial Statistics: Bank of Finland Bulletin: and data provided by the Finnish authorities.
Table 15.

Finland: Interest Rates, 1992-96

(Average of dally observations In last month of quarter: in percent per annum, except as noted)

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Sources: Bank of Finland, Bulletin: and data provided by the Finnish authorities.

Average of daily rates. Call money credit rate until July 2, 1992.

Effective yield on fixed-rate taxable government bonds (4-5 years), secondary market.

As measured by the year-on-year percentage change in the consumer price index in the last month of quarter.