Financial Repression is Knocking at the Door, Again

By Etibar Jafarov, Rodolfo Maino, Marco Pani

September 30, 2019

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Etibar Jafarov, Rodolfo Maino, and Marco Pani. Financial Repression is Knocking at the Door, Again, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Banking, Credit, Financial crises, Financial institutions, Interest rate corridor, Interest rate policy, Loans, Monetary policy, Money

Keywords: Alternative investment, Asia and Pacific, Bank profitability ratio, Caribbean, Credit, Crisis, Crisis coefficient, Crisis increase, Debt, Debt crisis coefficient, Interest rate, Interest rate corridor, Interest rate policy, Interest rate restriction, IRC index, Liberalization event, Liberalization wave, Loans, Middle East, North Africa, Per capita income, Probability of a crisis, Rate of return, Sub-Saharan Africa, WP

Publication Details

Pages:

66
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/211
Stock No:

WPIEA2019211
ISBN:

9781513512488
ISSN:

1018-5941

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