Financial Repression in the Model for the Two Countries

Student: Kovalenko Alisa

Educational Programme: Economics (Bachelor)

Final Grade: 8

Year of Graduation: 2018

The constant growth of public debt in both developed and developing countries entails various forms of financial repression in these countries. Despite the negative effects on public welfare from the application of this policy, the government continues to actively use this tool to secure public debt and reduce the burden of interest payments on it. The purpose of this study is to identify the external effects of the use of financial repression in one country on the welfare of another. In this paper we consider a two-country model in discrete time. The world capital market is integrated and absolutely mobile between countries. In one country, financial repression is applied, while in another country a balanced budget is applied. The paper applies financial repression in the form of non-market placement of public debt at a lower interest rate. Key words: financial repression, government debt, capital flows

Full text (added May 15, 2018)

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