Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289552 
Year of Publication: 
2024
Series/Report no.: 
DIW Discussion Papers No. 2075
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Financial repression lowers the return on government debt and contributes, all else equal, towards its liquidation. However, its full effect on the debt-to-GDP ratio hinges on how repression impacts the economy at large because it alters investment and saving decisions. We develop and estimate a New Keynesian model with financial repression. Based on U.S. data for the period 1948-1974, we find, consistent with earlier work, that repression was pervasive but gradually phased out. A model-based counterfactual shows that GDP would have been 5 percent lower, and the debt-to-GDP ratio 20 percentage points higher, had repression not been phased out.
Subjects: 
Financial repression
Government debt
Interest rates
Banks
Regulation
Bayesian estimation
JEL: 
H63
E43
G28
Document Type: 
Working Paper

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