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Financial Repression and Economic Growth

Student: Ekaterina Zavilovich

Supervisor: Sergey E. Pekarski

Faculty: Faculty of Economic Sciences

Educational Programme: Applied Economics (Master)

Year of Graduation: 2020

The global Financial Crisis of 2007-2008 and the recession after were a great problem for many developed and developing countries and led to the accumulation of a debt comparable to the level of debt after the Second World War. A new challenge for the economy in the form of consequences from the spread of COVID-19 will lead to an even greater increase in debt obligations by the end of 2021. Thus, countries are interested in finding effective ways to reduce their debt burden. Due to the fact that in modern realities, traditional instruments of monetary and fiscal policies are often not effective, countries choose to use financial repression. Views on the use of financial repression have changed over time. The question of the direction of the impact of financial repression on economic growth remains unresolved. In the theoretical and empirical literature, there are diametrically opposed points of view. This paper aims to analyze the impact of financial intervention on economic growth in East Asia and Oceania over the past 18 years. The index of financial repression was constructed in order to identify this impact. The inclusion of the constructed index in the regression analysis showed the negative impact of government interventions on economic growth in the selected region. The identified patterns, on the one hand, can be used by state regulators as another argument in favor of not suppressing the financial sector. On the other hand, in terms of permanent endogenous shocks to the economy, despite all the disadvantages of using financial repression, this is still one of the most effective ways to stabilize the economy.

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