Economists are no fortune-tellers

"I plan to draw comparisons between the Finnish financial crisis of the early 1990s and the present crisis," reveals Professor of Empirical Macroeconomics Antti Ripatti when asked about his inaugural lecture on Wednesday, 30 May 2012.

Economists are no fortune-tellers

Antti Ripatti states that in the 1990s, domestic problems made the recession seem deep and permanent. When the financial crisis struck in 2008–2009, it was considered temporary, since the basic elements of the Finnish economy were in order. However, the global spread and depth of the crisis, as well as the euro crisis immediately afterwards came as a surprise – to most economists as well.

– Crises are usually unpredictable. You cannot write the news in advance, Ripatti says.

Tackling financial expectations

At the moment, Ripatti’s research interests include the role of the financial market in macroeconomics.

– Traditional textbook models expect the financial market to function perfectly smoothly. The crisis was a telling reminder of the opposite.

Ripatti is also planning to launch an extensive research project to model situations in which economic agents predict monetary and fiscal policy measures.

– For example, the vehicle tax reform that took place in early April had been known for some six months, and people anticipated it by either purchasing cars before the reform or putting off buying a fuel-economical car whose tax rate was going to decrease, Ripatti explains.

He goes on to say that comparable situations take place continuously in connection to income tax or public expenses. The same phenomenon was witnessed in the IT boom of the late 1990s, when investors began spending their expected profits beforehand.

Finland in the throes of structural change

In terms of business cycles, the Finnish economy has fared well during the recent international financial crisis and the euro crisis, Ripatti surmises. However, he is worried about two major structural changes, namely, the reduction of the forest industry and Nokia’s recent problems.

– The main question is whether something will emerge to replace them – a new Angry Birds or some other enterprise.

Antti Ripatti’s lecture "Turning points in empirical macroeconomics" (in Finnish) will be held on Wednesday, 30 May 2012 at 15.15 in Room 13 of the University of Helsinki Main Building (Fabianinkatu 33, 3rd floor).

Inauguration 30 May 2012 »»

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Text: Elias Krohn
Photo: 123rf
30.5.2012
Translation: Leila Soikkonen
University of Helsinki, digital communications


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