Financial Repression is Knocking at the Door, Again

67 Pages Posted: 8 Nov 2019

See all articles by Etibar Jafarov

Etibar Jafarov

International Monetary Fund - European Department

Rodolfo Maino

International Monetary Fund (IMF)

Marco Pani

International Monetary Fund (IMF) - Middle East and Central Asia Department

Date Written: September 2019

Abstract

Financial repression (legal restrictions on interest rates, credit allocation, capital movements, and other financial operations) was widely used in the past but was largely abandoned in the liberalization wave of the 1990s, as widespread support for interventionist policies gave way to a renewed conception of government as an impartial referee. Financial repression has come back on the agenda with the surge in public debt in the wake of the Global Financial Crisis, and some countries have reintroduced administrative ceilings on interest rates. By distorting market incentives and signals, financial repression induces losses from inefficiency and rent-seeking that are not easily quantified. This study attempts to assess some of these losses by estimating the impact of financial repression on growth using an updated index of interest rate controls covering 90 countries over 45 years. The results suggest that financial repression poses a significant drag on growth, which could amount to 0.4-0.7 percentage points.

Keywords: Financial crises, Economic stabilization, Interest rates on deposits, Interest rates on loans, Financial statistics, Financial Repression, Financial Liberalization, Financial Regulations, Growth., WP, FRI, debt crisis, per_capita growth, liberalization, borrower

JEL Classification: G21, G28, H23, H81, K23, N20, O43, E01, E52, G2, P

Suggested Citation

Jafarov, Etibar and Maino, Rodolfo and Pani, Marco, Financial Repression is Knocking at the Door, Again (September 2019). IMF Working Paper No. 19/211. Available at SSRN: https://ssrn.com/abstract=3482295

Etibar Jafarov (Contact Author)

International Monetary Fund - European Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rodolfo Maino

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marco Pani

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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