Financial Restraints and Liberalization in Postwar Europe
AbstractIn the real world of less than perfect markets, balancing the benefits and costs of financial liberalization is usually impossible ex ante. Having been slow to liberalize, postwar Europe offers a possible testing ground. Looking at the experience in Belgium, France and Italy, a number of interesting lessons can be learnt. There is no discernible growth effect of financial repression in the sample studied here. Credit ceilings do not reduce the volatility or the level of nominal interest rates but they succeed in lowering the average real interest rate level. Capital controls keep interest rates down but increase their volatility. Financial restraints have been used to provide cheap financing of public sector deficits and to support industrial policies, but have undermined fiscal discipline and monetary control. Upon liberalization, the rent created by financial repression, initially captured by the public sector, did not disappear but shifted towards the personnel .
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- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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