Macro-Economic Effects of Stabilisation under Financial Repression

Rajanendra Narayan Nag and Mallinath Mukhopadhyay
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Rajanendra Narayan Nag: St. Xavier's College, Calcutta
Mallinath Mukhopadhyay: St. Xavier's College, Calcutta

Indian Economic Review, 1998, vol. 33, issue 1, 1-17

Abstract: The new-structuralists make a very strong claim that IMF-sponsored stabilization plans, particularly tight monetary policy and high interest rate paid on demand deposit produce stagflationary effects in a financially repressed economy. However, this proposition is highly sensitive to the choice of exchange rate regime and nature of trade-orientation of a LDC. Once we allow for exchange rate flexibility on current account as a part of the stabilization package and reckon with capital goods imports as a reflection of import-penetration in the production-structure, the new structuralist thesis of stagflation gets seriously altered.

JEL-codes: E63 G11 (search for similar items in EconPapers)
Date: 1998
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