Financial repression in general equilibrium: The case of the United States, 1948-1974

Martin Kliem, Alexander Kriwoluzky, Gernot Müller and Alexander Scheer

No 20/2024, Discussion Papers from Deutsche Bundesbank

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)
Date: 2024
New Economics Papers: this item is included in nep-dge and nep-his
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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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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:299242

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