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The Return of Financial Repression

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  • Reinhart, Carmen M.

Abstract

Periods of high indebtedness have historically been associated with a rising incidence of default or restructuring of public and private debts. Sometimes the debt restructuring is more subtle and takes the form of 'financial repression'. Consistent negative real interest rates are equivalent to a tax on bond holders and, more generally, savers. In the heavily regulated financial markets of the Bretton Woods system, a variety of financial domestic and international restrictions facilitated a sharp and rapid reduction or 'liquidation' of public debt from the late 1940s to the 1970s. The restrictions or regulatory measures of that era had their origins in what would now come under the heading of 'macroprudential' concerns in the wake of the severe banking crises that swept many countries in the early 1930s. The surge in public debts that followed during the Great Depression and through World War II only made the case for stable and low interest rates and directed credit more compelling to policymakers. The resurgence of financial repression in the wake of the 2007-2009 financial crises alongside the surge in public debts in advanced economies is documented here. This process of financial 'de-globalization' may have only just begun.

Suggested Citation

  • Reinhart, Carmen M., 2012. "The Return of Financial Repression," CEPR Discussion Papers 8947, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8947
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    References listed on IDEAS

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    1. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
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    Cited by:

    1. Stolbov, Mikhail, 2013. "The finance-growth nexus revisited: From origins to a modern theoretical landscape," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-22.
    2. van Riet, Ad, 2015. "Market-preserving fiscal federalism in the European Monetary Union," MPRA Paper 77772, University Library of Munich, Germany.
    3. Belke Ansgar, 2014. "Europäische Zentralbank: kontraproduktive unkonventionelle Geldpolitik und der Euro-Wechselkurs / European Central Bank: counter-productive unconventional monetary policy and the exchange rate," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 117-132, January.
    4. Harald Uhlig, 2014. "Sovereign Default Risk and Banks in a Monetary Union," German Economic Review, Verein für Socialpolitik, vol. 15(1), pages 23-41, February.
    5. Kanat S. Isakov & Sergey E. Pekarski, 2015. "Financial Repression and Laffer Curves," HSE Working papers WP BRP 113/EC/2015, National Research University Higher School of Economics.
    6. Nicholas Crafts, 2014. "What Does the 1930s' Experience Tell Us about the Future of the Eurozone?," Journal of Common Market Studies, Wiley Blackwell, vol. 52(4), pages 713-727, July.
    7. van Riet, Ad, 2016. "Government Funding Privileges in European Financial Law : Making Public Debt Everybody's Favourite?," Discussion Paper 2016-045, Tilburg University, Center for Economic Research.
    8. Ansgar Belke & Florian Verheyen, 2014. "The Low-Interest-Rate Environment, Global Liquidity Spillovers and Challenges for Monetary Policy Ahead," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(2), pages 313-334, June.
    9. Olga A. Norkina & Sergey E. Pekarski, 2014. "Optimal Financial Repression," HSE Working papers WP BRP 81/EC/2014, National Research University Higher School of Economics.
    10. Nicholas Crafts, 2013. "Long-Term Growth in Europe: What Difference does the Crisis Make?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 224(1), pages 14-28, May.
    11. Yukon Huang & Clare Lynch, 2013. "Does Internationalizing the RMB Make Sense for China?," Cato Journal, Cato Journal, Cato Institute, vol. 33(3), pages 571-585, Fall.
    12. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    13. Andreas Hoffmann, 2014. "Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets," ICER Working Papers 02-2014, ICER - International Centre for Economic Research.
    14. Ansgar Belke & Jonas Keil, 2013. "Niedrigzinsfalle: die Gefahr der finanziellen Repression," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 82(2), pages 113-125.
    15. Pastor, Manuel & Wise, Carol, 2015. "Good-Bye financial crash, hello financial eclecticism: Latin American responses to the 2008–09 global financial crisis," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 200-217.
    16. Zhaomin Zou, 2013. "La transition financière chinoise : un contre-exemple de la libéralisation financière," Post-Print halshs-00904296, HAL.
    17. Norkina, O. & Pekarski, S., 2015. "Nonmarket Debt Placement As Financial Repression," Journal of the New Economic Association, New Economic Association, vol. 28(4), pages 31-55.
    18. Bastien Drut, 2013. "La répression financière est-elle la solution pour « liquider » la dette publique dans la zone euro ?," Working Papers CEB 13-003, ULB -- Universite Libre de Bruxelles.
    19. Isakov, Kanat S. & Pekarski, Sergey E., 2016. "An Estimation of Impact of Financial Repression on Budget Revenues," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 28-49, October.
    20. Gerhard R?sl & Karl-Heinz T?dter, 2015. "The Costs and Welfare Effects of ECB's Financial Repression Policy: Consequences for German Savers," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 42-59, November.

    More about this item

    Keywords

    capital controls; debt; financial repression; inflation; interest rates; regulation;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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