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Liberalization Policies and Welfare in a Financially Repressed Economy

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  • Juha Kähkönen

    (International Monetary Fund)

Abstract

The welfare effects of three types of liberalization policy--financial deregulation, relaxation of capital controls, and trade liberalization--are studied under the realistic assumption that in the short run all markets cannot be liberalized simultaneously. An intertemporal general equilibrium model with two traded goods is used to show that partial reforms, which in the long run are beneficial, may well cause welfare losses in the short run. Contrary to the standard view, raising the deposit rate may reduce welfare if tariffs are present, whereas tariffs can raise welfare when financial repression discourages saving.

Suggested Citation

  • Juha Kähkönen, 1987. "Liberalization Policies and Welfare in a Financially Repressed Economy," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 531-547, September.
    • Handle: RePEc:pal:imfstp:v:34:y:1987:i:3:p:531-547
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    Cited by:

    1. Bhattacharya, Rina, 1997. "Pace, sequencing and credibility of structural reforms," World Development, Elsevier, vol. 25(7), pages 1045-1061, July.
    2. Battle, Ann Marie, 1997. "Welfare effects of liberalization reforms with distortions in financial and labor markets," Journal of Development Economics, Elsevier, vol. 52(2), pages 279-294, April.

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