Using a macromodel to examine policy alternatives : Some Finnish results

This paper focuses on the question of how to design policies which would help a small open economy to improve its growth potential. To this end, the effects of several policy instruments are evaluated using the QMED model of the Bank of Finland as an analytical framework. Special emphasis is placed on supply-side effects, which include both relative price effects and (endogenous) capacity effects. The policy simulations suggest that well-designed economic policies would indeed pay off in the form of improvements in competitiveness and productive capacity.