From depression to recession with Techila

11.2.2015

 

The Bank of Finland publishes a paper “Kiss me deadly: From Finnish great depression to great recession”, which discusses the causes of the Finnish Great Depression, 1990-1993. The simulations benefited of self-managing distributed computing, which was enabled by Techila Distributed Computing Engine.

In the project, the authors Dr. Adam Gulan, Dr. Markus Haavio, and Dr. Juha Kilponen estimated a structural vector autoregressive VAR model for Finland, where the shocks were identified by using sign restrictions methodology. This methodology is computationally very intensive for large models and with many sign restrictions.

“Without parallel computing it would have been practically impossible to finalize the project,” the project team argues.

In the project, the authors found that the collapse of the overheated financial and banking sectors starting in 1989 was the trigger of the economic crisis in Finland. Foreign shocks, which include the collapse of trade with USSR in 1991, can account for at most about half of the slump, and these shocks occurred only when the economy was already in free fall. Also, the deleveraging and restructuring process of the financial system substantially prolonged the subsequent recovery. In more general, the project improved our understanding on the interaction between macro economy and financial markets — topic which is very widely debated among academics and policymakers.

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