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Financial Restraints and Liberalization in Postwar Europe

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  • Wyplosz, Charles

Abstract

In the real world of less than perfect markets, balancing the benefits and costs of financial liberalization is usually impossible ex ante. Having been slow to liberalize, postwar Europe offers a possible testing ground. Looking at the experience in Belgium, France and Italy, a number of interesting lessons can be learnt. There is no discernible growth effect of financial repression in the sample studied here. Credit ceilings do not reduce the volatility or the level of nominal interest rates but they succeed in lowering the average real interest rate level. Capital controls keep interest rates down but increase their volatility. Financial restraints have been used to provide cheap financing of public sector deficits and to support industrial policies, but have undermined fiscal discipline and monetary control. Upon liberalization, the rent created by financial repression, initially captured by the public sector, did not disappear but shifted towards the personnel .

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  • Wyplosz, Charles, 1999. "Financial Restraints and Liberalization in Postwar Europe," CEPR Discussion Papers 2253, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2253
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    Cited by:

    1. World Bank & the People’s Republic of China Development Research Center of the State Council, 2013. "China 2030 : Building a Modern, Harmonious, and Creative Society," World Bank Publications - Books, The World Bank Group, number 12925.
    2. Mauricio Drelichman & Hans-Joachim Voth, 2008. "Debt Sustainability in Historical Perspective: The Role of Fiscal Repression," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 657-667, 04-05.
    3. Wyplosz, Charles, 2001. "How Risky is Financial Liberalization in the Developing Countries?," CEPR Discussion Papers 2724, C.E.P.R. Discussion Papers.
    4. Wyplosz, Charles, 2001. "Do We Know How Low Inflation Should Be?," CEPR Discussion Papers 2722, C.E.P.R. Discussion Papers.
    5. Barry Eichengreen & David Leblang, 2003. "Capital account liberalization and growth: was Mr. Mahathir right?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 205-224.
    6. Hans-Joachim Voth, 2003. "Convertibility, currency controls and the cost of capital in Western Europe, 1950-1999," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 255-276.
    7. Wyplosz, Charles, 2001. "Exchange Rate Regimes: Some Lessons from Postwar Europe," CEPR Discussion Papers 2723, C.E.P.R. Discussion Papers.
    8. Forssbaeck, Jens & Oxelheim, Lars, 2007. "The transition to market-based monetary policy: What can China learn from the European experience?," Journal of Asian Economics, Elsevier, vol. 18(2), pages 257-283, April.
    9. Rangan Gupta, 2007. "Financial Liberalization and Inflationary Dynamics: An Open Economy Analysis," International Economic Journal, Taylor & Francis Journals, vol. 21(3), pages 335-360.
    10. Barry Eichengreen & David Leblang, 2003. "Exchange Rates and Cohesion: Historical Perspectives and Political‐Economy Considerations," Journal of Common Market Studies, Wiley Blackwell, vol. 41(5), pages 797-822, December.
    11. Makram El-Shagi, 2010. "Capital controls and international interest rate differentials," Applied Economics, Taylor & Francis Journals, vol. 42(6), pages 681-688.
    12. World Bank & P.R.C. Development Research Center of the State Council, 2012. "China 2030 : Building a Modern, Harmonious, and Creative High-Income Society [pre-publication version]," World Bank Publications - Books, The World Bank Group, number 6057.
    13. Hongyi Chen & Lars Jonung & Olaf Unteroberdoerster, 2014. "Lessons for China from Financial Liberalization in Scandinavia," Asian Economic Papers, MIT Press, vol. 13(1), pages 1-44, Winter.
    14. Barry Eichengreen & Hans-Joachim Voth, 2003. "Symposium on capital controls," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 185-187.
    15. Marrazzo, Marco & Terzi, Alessio, 2017. "Structural reform waves and economic growth," Working Paper Series 2111, European Central Bank.
    16. Diego Romero-Avila, 2009. "Liberalization of capital controls and interest rates restrictions in the EU-15: did it affect economic growth?," Applied Financial Economics, Taylor & Francis Journals, vol. 19(20), pages 1625-1648.
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    More about this item

    Keywords

    Banking; Capital Controls; Credit Ceilings; Financial Repression; Liberalization;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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