Financial Repression, Bank Deposits, Real Assets and Black Money

Gurbachan Singh ()
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Gurbachan Singh: Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi

Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers from Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India

Abstract: Consider real assets and bank deposits. If returns on deposits improve due to reduction in financial repression, then investment in real assets can fall. However, if role of black money in real asset (secondary) market falls, then investment in the primary market can rise. So financial development will occur if the effect of reduction in financial repression is stronger than that of reduction of black money. This is shown in a model, with forced sales (due to liquidity shock), and strategic sales of real assets (under asymmetric information). Under some conditions, price is irrelevant for strategic trades.

Pages: 21 pages
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Citations: View citations in EconPapers (2)

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