On the Financial Repression in Japan During the High Growth Period (1953-73)

Japanese financial policies during the so called High Growth Period (HGP-roughly 1953-1973) stand at sharp contrast with the presumptions of the financial liberalization literature. Against the Japanese example, McKinnon (1991) and Horiuchi (1984) have argued, based on relatively high interest rates in Japan during this period compared to developed economies, that the Japanese financial market was not repressed. In this paper, Japanese financial policies during the HGP are examined to show the heavy and distortionary but purposeful government intervention in the financial markets. Moreover evidence is provided against those of McKinnon and Horiuchi to show that major interest rates have been repressed during the HGP. Finally, the reasons that forced the Japanese government to implement financial liberalization after 1973 are discussed. These reasons do not include considerations related to growth and the growth performance have declined after 1973.Japanese financial policies

Why governments may opt for financial repression policies: selective credits and endogenous growth

Financial repression policies (lowering real interest rates, selective credits and other restrictions on financial markets, products and institutions) have been widely discussed in the economic literature during the last four decades. A key question is ‘why governments would opt for financial repression policies in the first place’? As an answer, governments’ desire to obtain rents from the financial system or to manage public debt servicing have been suggested as the typical underlying incentives. It has been argued in 1970s and 1980s that especially in developing economies, financial repression would have negative consequences on economic growth and financial development, although more recently financial repression policies are back as governments in the developed economies aim at obtaining low-cost funds from the financial markets in the aftermath of the global financial crises.In this article, a simple two-sector model is set up in order to show that governments may institute financial repression policies to internalise production and investment externalities. It is shown that such a government policy is welfare improving and abolishment of selective credits may cause welfare loss. The model also provides a case where financial policy is designed according to the priorities of industrial policy

Readapting macroeconomic management to a globalized economy: How to handle the accountability on the current account balance

Current account imbalances that have been a component of the globalization process threaten overall macroeconomic management, jeopardize financial stability and exacerbate effects of financial turmoil. Despite its detrimental effects, however, current account imbalances are overlooked by policy makers. In this paper we argue that assigning the responsibility to monitor and be accountable on the current account balance to an appropriate public institution would improve macroeconomic management not only in terms of soothing external balance but would also make internal balance concerns less troublesome and mitigate risks of economic and financial crises. Considering the developments particularly in the aftermath of the global financial crisis, we propose the central bank as a plausible candidate