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Financial Repression Effect on Economic Growth: An Empirical Analysis

Akhmed Abu Bakr F.A. Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs of the Russian Federation, Moscow, Russian Federation ( )

Journal: Economic Analysis: Theory and Practice, #9, 2017

Subject The article considers the influence of financial repression index (FRI) on economic growth of OECD and BRICS nations through econometric models.
Objectives The purpose of this study is to build a linear model to establish the impact of FRI on GDP growth rate and examine the effect of the index on economic growth components such as consumption, investment and government spending.
Methods At the core of the research lies regression analysis of linear economic growth model. To analyze the panel of data, various static estimating model are used.
Results I have built a linear growth model and included the FRI as one of the variables. The estimators used fail to identify a significant impact of FRI on the dependent variable. Second, I construct linear models with GDP components as functions and analyze the effect of FRI on the dynamics of those. As a result, I obtain positive indications of FRI affecting negatively in the medium term the dynamics of consumption, the main driver of growth in the developed world.
Conclusions and Relevance The effect of financial repression in short and medium terms cannot necessarily be identified through GDP rate dynamics, but could be captured through the evolution of consumption. This opens a new perspective on the study of financial repression policies and its detrimental effect beyond banking and investment spheres.

Financial repression index analysis in OECD and BRICS countries

Akhmed Abu Bakr F.A. Moscow State Institute of International Relations (University) of Ministry of Foreign Affairs of Russian Federation, Moscow, Russian Federation ( )

Journal: Financial Analytics: Science and Experience, #8, 2017

Importance The article deals with the issues of financial repression policy aimed at raising additional income for the State budget as well as reducing the public debt burden, and it discusses a quantitative assessment of the impact of such non-conventional monetary policy measures on economic growth. The article studies the composition of financial repression policy tools applied in thirteen OECD and BRICS countries selected.
Objectives The article aims to build an index of financial repression and examine its structure, determining the impact of a certain monetary policy tool on the overall index performance.
Methods The paper employs several methods of econometric research. The core one is the method of Principal Component Analysis. To conform statistical data to the analysis requirements, I used T-statistics standardization. As well, I have built a correlation matrix to highlight similarities between financial repression policies in various countries.
Results The article presents a built financial repression index and the results of the analysis of the structure of financial repression index elements, revealing specific features of policy implementation for each particular country.
Conclusions The majority of countries display a similar downward pattern of financial repression index dynamics. Nevertheless, the global crisis of 2007–2009 and commodity price slump of 2014 prompted a drastic spike of financial repression policies.

An Analysis of the Financial Repression Index in the OECD and BRICS Countries

Akhmed Abu Bakr F.A. Moscow State Institute of International Relations (University) of Ministry of Foreign Affairs of Russian Federation, Moscow, Russian Federation ( )

Journal: Digest Finance, #3, 2017

Importance Considering the persistence of high public debt and low growth rates, the financial repression policy remains relevant in advanced and some emerging economies. It pursues additional fiscal revenue and reducing the debt burden by artificially lowering the real interest rate, yield on deposits and government bonds. However, it becomes even more important to quantify how those measures of monetary policy influence economic growth. Making the first attempt in this respect, it is reasonable to set up a weighted index, which would imply key aspects of such policies. The article analyzes financial repression tools in 13 countries.
Objectives I set up the financial repression index and analyze what it is composed of, determining the importance of a certain tool of monetary policy as part of the general index trends.
Methods The research employs several econometric methods, with the prevalence of the Principal Component Analysis. Statistical data were brought into compliance with analyzable criteria using the T-test formula. To trace cross-country parallels, I use a correlation matrix.
Results The financial repression index was built. I also analyze its composition per each country and identify distinctions in applying certain financial repression tools and find a group of countries with similar characteristics.
Conclusions and Relevance Most countries demonstrated a downward trend in the financial repression index. During the 2007–2009 global financial crisis and the 2014–2015 commodity price slump, the index demonstrated a spike proving that the countries resorted to financial repression tools.

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