As austerity policies are unpopular with voters and high debt levels are a drag on growth, several economists, most famously Carmen Reinhart and Kenneth Rogoff, have suggested that governments might have to consider an extra dose of financial repression as a way out of the low growth-high debt trap. I argue that the history of advanced economies under Bretton Woods and the liberalisation experience of the lagging countries suggest that an exit from financially repressive policies is the better alternative to promote growth and the sustainability of government finances.
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Financial repression is an umbrella term originally referring to policies that impede the proper functioning of capital markets, see R. McKinnon: Money and Capital in Economic Development, originally published 1973, Reprint 2010, Brookings Institution Press. Since governments typically pursue such policies to achieve fiscal goals, the term “financial repression” is typically used to refer to policies that artificially raise the attractiveness of government bonds. Modern financial repression can take the form of macro-prudential policies, in which government bonds receive preferred treatment (e.g. capital requirement regulation), bond yield caps that are guaranteed by central banks (“Whatever it takes policy?”) or captive regulation (for instance by forcing pension funds to hold a large portfolio of government bonds). The IMF has recently come out to support some forms of prudential regulation formerly known under the umbrella of financial repression.
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Hoffmann, A. Beware of Financial Repression: Lessons from History. Intereconomics 54, 259–266 (2019). https://doi.org/10.1007/s10272-019-0833-0