Denmark, Finland, Norway, and Sweden form a tightly integrated region which has strong ties with the euro area as well as some exposure to Russia. Using the IMF’s Global Integrated Monetary and Fiscal model (GIMF), we examine spillovers the region could face, focusing on possible scenarios from the rest of the euro area and Russia, and the fall in global oil prices. We show that the spillovers from these scenarios differ in magnitude and impact, regardless of the high degree of integration among the four Nordic economies. These differences are driven by the fact that Denmark and Finland have no independent monetary policy, and Denmark and Norway are net energy exporters while Finland and Sweden are energy importers. We infer lessons for policy from the outcomes.
-led recovery in 2010–11 subsided as euro areaimport demand slowed. Combined with weak domestic demand, growth has noticeably underperformed trade partners and peers since the middle of 2011. Economic activity is expected to be weak in 2013 and recover gradually thereafter. Risks are to the downside due to the prolonged euro area recession.
Policies : Short-term macroeconomic policies should avoid creating additional drag with a neutral fiscal stance and monetary policy addressing deflationary pressures at the zero lower bound. In the medium- to long-term, it is important
oil price measured in euro. Consequently, the external shock may be said to be roughly two-thirds exchange rate-related, and one third oil price-related.
Euro Area: Import Price Shock
(1997 Q4 to 2001 Q1)
Import prices (goods and services)
Non-energy import prices
Energy import prices
‒ Euro/US dollar exchange rate
- Oil price in US dollar