Does Financial Deregulation Cause a Consumption Boom?

According to a growing number of critics, the process of financial liberalization in the 1980s is to blame for the volatile macroeconomic development in a number of countries, including the United Kingdom and the Nordic countries. The authors examine how financial deregulation affected one important component of aggregate demand, private consumption. A main finding is that the Swedish consumption boom of the late 1980s can be explained along other lines than financial deregulation. The mid-1980s also constituted a period when real wage growth picked up and the authors' data are consistent with the simple idea that permanent income dynamics was an important factor. Copyright 1996 by The editors of the Scandinavian Journal of Economics.