Financial Repression in General Equilibrium: The Case of the United States, 1948–1974

Martin Kliem, Alexander Kriwoluzky, Gernot Müller and Alexander Scheer

No 2075, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

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.

Keywords: Financial repression; Government debt; Interest rates; Banks; Regulation; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E43 G28 H63 (search for similar items in EconPapers)
Pages: 47 p.
Date: 2024
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-his
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Financial repression in general equilibrium: The case of the United States, 1948-1974 (2024)
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