Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Macroprudential policy or financial repression

Douglas J. Elliott, Greg Feldberg, and Andreas Lehnert published a FEDS working paper last week entitled The History of Cyclical Macroprudential Policy in the United States. In gory detail, the paper describes every conceivable credit restriction that the US has imposed at some time or the other over some eight decades. It appears to me that most of them are best characterized as financial repression and not macroprudential policy. If one adopts the authors’ logic, one could go back to the middle ages and describe the usury laws as macroprudential policy.

Some two decades ago, we thought that financial repression had been more or less eliminated in the developed world, and was being gradually eliminated in the developing world as well. Post crisis, as much of the developed world deals with the sustainability of sovereign debt, financial repression is back in fashion, and macroprudential regulation provides a wonderful figleaf.

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