Financial Repression: Evidence and Theory

Varadarajan Chari, Alessandro Dovis and Patrick Kehoe

No 16-4, Economic Policy Paper from Federal Reserve Bank of Minneapolis

Abstract: ?Financial repression??policies that allow a government to place its debt with financial institutions at relatively low interest rates?has been used widely for centuries. This essay focuses on one important form of repression: requiring financial intermediaries to hold more government bonds than they would if policies didn?t require it. We argue that this policy should only be used when the government has an urgent need to issue debt and has difficulty issuing new debt because of potential lender doubts about the government?s ability to repay. {{p}} This research suggests that policies that allow financial institutions to hold only small amounts of their own country?s government bonds may not be desirable.

Pages: 5 pages
Date: 2016-03-01
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Citations: View citations in EconPapers (5)

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