The Oil Crises: The Reason for Finnish Stagflation?

Working Papers 79 Markus Sovala

Abstract

In this article Michael Bruno and Jeffrey Sachs’ theory of stagflation in the 1970’s is evaluated with regard to Finland. Bruno and Sachs argue that a rise in the price of energy and raw materials together wi th real wage rigidi ty caused profi t rates and demand for labour to fall. Theoretical and empirical arguments concerning the validity of Bruno and Sachs’ theory are dealt with. The results of a wage equation study show some negative response in real wages when the price of materials rises.

  • ISSN: 0357-9603
  • ISBN: 951-9282-00-9
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