Early 1990s: advanced countries crises

In Chapter 5, we first examine the Western European Exchange Rate Mechanism crisis of 1992, then discuss crises in the Nordic countries of Norway, Sweden, and Finland. Afterward, we turn to the long-lasting Japanese crisis. In the early 1990s, several crises occurred: the Western Europe Exchange Rate Mechanism crisis of 1992, the Nordic country crises, and the Japanese crisis that spanned the decade. Crises in Western Europe and the Nordic countries in the early 1990s were not, unlike the debt crisis of the 1980s, calamitous. The Western European Exchange Rate Mechanism crisis of 1992 resulted from an unforeseen politico-economic shock, the reunification of Germany, while the Nordic country crises resulted from premature financial liberalization. Although Japan’s crisis was directly associated with financial deregulation, the roots of the crisis were embedded in structural problems in the economy, extending Japan’s financial distress for years after its real estate bubble burst in 1992. Keywords: exchange rate mechanism, Nordic crisis, German reunification, Japanese crisis