Financial repression policy: Experience of foreign countries
Importance The 2007 international credit crisis triggered a long term recession with developed countries at its core. Facing the problem of inefficient conventional debt reduction tools, official economic authorities turned to financial repression policy. The concept, introduced by E. Show and R. McKinnon, involves measures of raising government income by manipulating the financial sector. The article provides a cross-country policy analysis. It gives both a historic and modern perspective on the phenomenon. The originality of this work is achieved by covering three most important policy implementation spheres: securities market, banking sector and government owned financial entities. The article analyzes the use of a certain instrument in foreign countries. Objectives The purpose is to analyze financial repression policy implementation and to identify country specific measures applied. Methods Through logical scientific methods, I reveal theoretical framework for financial repression implementation in both developing and developed countries, taking a comprehensive look at peculiar features of the crisis that prompted it. Results The article describes current crisis characteristics that required unconventional monetary policy measures. For further analytical purposes, countries have been grouped based on financial sector structure. The research focuses on financial repression practices and country specific tool box applied in countries like the U.S., the UK, continental EU, China and India. Conclusions and Relevance Financial repression is an efficient and widely implemented monetary policy tool. However, in countries with traditional (bank-based) financial sector direct State interference allows to raise government income substantially faster than in market-based nations.