The Republic of Finland

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GDP - composition, by end use

household consumption: 56.3% government consumption: 24.3% investment in fixed capital: 18.3% investment in inventories: 0.3% exports of goods and services: 38% imports of goods and services: -37.3%

(2013 est.)

( http://www.indexmundi.com )

PRICE INDEXES

Consumer Price Index

During the given period between 2008 and 2015 the Finnish CPI shows a steady and slow increase. This is a completely normal and average tendency if we are examining any given country in the European Union with its capitalist system.[pic 4]

The first increment during this period can be seen after the housing bubble, which had a huge impact on the world’s economy, but less effect on Finland’s situation at that time.

Currently the CPI stays at 119.50 Index points which is a slight decrease from the former periods in 2014. However it is expected that the CPI will stay at the same level where it is right now.

Currently in March, consumer prices were pushed up most by increases in rents, retail prices of tobacco products, and price increases in maintenance services of blocks of flats. The rising of consumer prices was curbed in March most by reductions in the prices of liquid fuels, owner-occupied housing and dairy products from the year before.

Gross National Income[pic 5]

The current significant increase of the Finland’s economy in terms of its Gross National Income was mainly due to the fact of the new partners and delivers to Russian and to the United States of America. This peak reached itsits all-time highscore with 46649 EUR Million. According to the Statistics Finland the gross National Product in Finland averaged 33193.65 EUR Million from 1990 until 2014 record low of 22765 EUR Million in the first quarter of 1993.

According to the expectations of the Statistics Finland the current ascendant GNI will slope upwards in the near future too.

FISCAL AND MONETARY SYSTEM

Fiscal policy

Finland Uses the standard real business cycle model with so-called lump-sum taxes. They analyze the impact of fiscal policy when agents are forming expectations using adaptive learning rather than rational expectations. The output multipliers for government purchases are significantly higher at the method of learning, and fall inbetween the practical limits mentioned in professional literature (in contrast to the strangly low values under rational expectations). The effectiveness of Finnish fiscal policy is demonstrated during times of economic stress like the recent Great Recession.

Monetary policy

Finland is part of the euro area. The Eurosystem is responsible for the monetary policy in the euro area. The Eurosystem has an authority above the national central banks in the euro area and the European Central Bank in Frankfurt. As a member of the Eurosystem, the Bank of Finland takes part in the preparation of the sole monetary policy and the decision-making alongside the applying of these in the euro area.

The main goal of Eurosystem monetary policy is to maintain price stability in the euro area, defending the purchasing power of households.

The main monetary instruments are the key interest rates. The most significant interest rates of the Eurosystem are set by the Governing Council of the ECB which includes the Governor of the Bank of Finland as a member. Monetary decisions are based on the Council’s judgement.

The Bank of Finland publishes an assessment of the economic situation around the world and in Finland in the Bank of Finland Bulletin. Economic forecasts are published twice a year.

Monetary policy instruments

The Eurosystem's most important monetary policy instrument is the main refinancing operations held once a week in relation with the decisions made by the Governing Council of the ECB. Within the main refinancing operations, the Bank of Finland grants its customers, other approved counterparties, credit against security at a lending rate set by the ECB.

In Finland, all credit institutions are obliged to keep minimum reserves on accounts with the Bank of Finland. These funds can be used to neutralise short-term fluctuations in bank liquidity and to effect interbank transfers. Credit institutions can keep this minimum reserves directly on own accounts with the Bank or indirectly through an account held by the relevant central monetary institution with the Bank.

Key ECB interest rates

The key instrument of Eurosystem monetary policy is the interest on the most significant refinancing operations which shows the situation of monetary policy. Changes in the interest rate in terms of main refinancing operations are visible in the short-term money-market rates. The main refinancing operations of the Eurosystem are variable rate tenders, applying the so-called multiple rate auction procedure. The Governing Council sets a minimum bid rate for banks (which is the ECB key interest rate), which signals the condition of monetary policy. In addition, the Eurosystem uses the interest rates applied to the actual facilities – the interest rates on the marginal lending facility and on the deposit facility – to keep overnight market rates under control and limits.

Open market operations

Money market operations play an important role in the Eurosystem's monetary policy. They are used for controlling interest rates, managing the liquidity and signalling the situation of monetary policy. The open market operations are must be executed by the national central banks on the recommendation of the ECB. Open market operations can be divided into three subcategories:

The main refinancing operations are regular reverse transactions that provide liquidity with a weekly frequency and a maturity of normally one week. Main refinancing operations are essential in fulfilling the objectives of Eurosystem’s market operations and provides financial power to refinance to the banking sector.

The longer-term refinancing operations are reverse transactions tha are again, liquidity-providing, with a monthly frequency and a standard maturity of three months. These operations are used to provide additional longer-tern financing for counterparties.