Emancipating the Banking System and Developing Markets for Government Debt

Book Cover......Page 1
Half-Title......Page 2
Title......Page 3
Copyright......Page 4
Contents......Page 5
Figures......Page 12
Tables......Page 14
Foreword......Page 15
Acknowledgements......Page 17
Part I Introduction and Debt-Deficit Dynamics......Page 19
1.1 Introduction......Page 20
1.2.2 The Central Bank and Inflationary Finance......Page 24
1.2.4 Foreign Debt Accumulation......Page 25
1.3.1 Essential Elements......Page 26
1.3.2 Persuasion......Page 27
1.3.3 Macroeconomic Prerequisites......Page 28
1.3.4 Microeconomic Prerequisites......Page 29
1.3.5 The Players......Page 30
1.3.6 Primary Markets......Page 31
1.3.8 Spillover to Markets for Private Sector Debt......Page 32
1.3.9 Summary of Developing Markets for Government Debt......Page 33
1.4 Roles for the Central Bank?......Page 34
1.4.2 Issue Manager......Page 35
1.4.4 Auction Participation......Page 36
1.4.5 Clearing and Settlement Systems......Page 37
1.4.7 Secondary Market Development......Page 39
1.5 Conclusion......Page 40
2.1 Introduction......Page 41
2.2 The Government Budget Constraint......Page 42
2.2.1 A Numerical Example......Page 43
2.2.3 Recapitulation......Page 44
2.3 The Fiscal Approach to Inflation and Financial Repression......Page 45
2.4 Government Deficits and Debts in 111 Countries......Page 46
2.5 The Intertemporal Budget Constraint in Practice......Page 50
2.6 The Italian Case......Page 51
2.7 Six Country Studies......Page 53
2.9 Deficits, Inflation, Saving and Growth......Page 56
2.10 Conclusion......Page 59
Part II Captive and Foreign Markets......Page 62
3.1 Introduction......Page 63
3.2.1 Flow Variables......Page 64
3.2.2 Stock Variables......Page 65
3.2.3 Time Trends......Page 68
3.3.1 Deficits and Reserve Money Growth......Page 70
3.3.3 Inflation and the Proportion of Central Bank Financing......Page 71
3.3.4 National Saving and the Proportion of Central Bank Financing......Page 73
3.3.5 Growth and the Proportion of Central Bank Financing......Page 74
3.3.6 Growth and Inflation......Page 75
3.4 Conclusion......Page 78
4.2 Real Interest Rate Distortions......Page 80
4.3 Rationale for Financial Repression......Page 81
4.4 Financial Restriction and Financial Repression......Page 84
4.5 The Financial Repression Paradigm......Page 86
4.6 Pathologically High Real Interest Rates......Page 89
4.7 Empirical Evidence......Page 91
4.7.1 Early Studies of Growth and Real Interest Rates......Page 92
4.7.2 Growth, Investment and Real Interest Rates......Page 94
4.7.3 Recent Studies of Growth and Real Interest Rates......Page 95
4.7.4 A New Estimate of Growth and Real Interest Rates......Page 96
4.8 Domestic Credit Expropriation and High Reserve Requirements......Page 97
4.9 Saving, Growth and Financial Distortions......Page 100
4.9.1 National Saving......Page 101
4.9.2  Investment......Page 102
4.9.3  Export Growth......Page 103
4.9.4  Output Growth......Page 104
wth Rates in the Pacific Basin and Other Developing Regions  .........Page 105
4.10  Conclusion......Page 109
5.1  Introduction......Page 111
5.2.1  Some Balance-of-Payments Accounting......Page 112
5.2.2  Stabilising Financial Effects......Page 113
5.2.3  Destabilising Fiscal Effects......Page 115
5.3.1  Saving and Investment Behaviour......Page 117
5.3.2  New Estimates of Inflation, Saving, Growth and Foreign Debt Accumulation......Page 120
5.3.3  Alternative Policy Responses......Page 122
5.4  Conclusion......Page 123
Part III  Developing Voluntary Domestic Markets......Page 125
6.1  Introduction......Page 126
6.2  The Essential Elements......Page 127
6.2.2  Equilibrium Market Pricing......Page 128
6.2.3  Illusory Equilibrium Pricing......Page 129
6.2.4  Unstable Equilibrium Pricing......Page 130
6.3.1  Lack of Voluntary Markets......Page 133
6.3.2  Existence of Voluntary Markets......Page 135
6.4  Persuading the Main Political Actors......Page 136
6.4.1  Two Historical Examples......Page 137
6.4.2  The Case Study Countries......Page 138
6.5.1  Macroeconomic Stability......Page 139
6.5.2  Coordination......Page 140
6.5.3  Tightening Monetary Policy......Page 141
6.5.4  The Case Study Countries......Page 142
6.5.5  Supervision and Regulation......Page 143
6.6  Sequencing......Page 144
6.7  Risk Perceptions......Page 146
6.8  Crowding Out?......Page 150
6.9  Implementing Monetary Policy......Page 152
6.10  Pitfalls......Page 154
6.11  Conclusion......Page 156
7.2  Microeconomic Prerequisites......Page 158
7.3.1  Finance Ministry......Page 160
7.3.2  Central Bank......Page 161
7.3.3  Financial Institutions......Page 163
7.3.4  Primary Dealers......Page 164
7.4  Market Structure......Page 166
7.5  Primary Markets......Page 167
7.6  Secondary Markets......Page 169
7.7  Spillover to Markets for Private Sector Debt......Page 171
7.8  Conclusion......Page 172
8.1  Introduction......Page 174
8.2  Information Provider......Page 176
8.3  Issue Manager......Page 177
8.5  Auction Participation......Page 178
8.6  Clearing and Settlement Systems......Page 180
8.8  Secondary Market Development......Page 182
8.9  Conclusion......Page 183
Appendix 1  Central Bank Case Study Questionnaire......Page 185
Appendix 2  Government Deficits as Percent of GDP......Page 187
Appendix 3  Government Domestic Debt as Percent of GDP......Page 191
Appendix 4  Government Foreign Debt as Percent of GDP......Page 195
Appendix 5  Government Debt as Percent of GDP......Page 199
Appendix 6  Government and Government-Guaranteed Foreign Debt as Percent of GDP......Page 203
Appendix 7  Continuously Compounded Rates of Economic Growth......Page 206
Appendix 8  Real Interest Rates......Page 210
Appendix 9  Continuously Compounded CPI Inflation Rates......Page 214
Appendix 10  Change in Reserve Money as Percent of GDP......Page 218
Appendix 11  Reserve Money as Percent of Broad Money (M2)......Page 222
Appendix 12  Bank Reserves as Percent of Bank Deposits......Page 226
Appendix 13  Growth Rates in Eight Case Study Countries......Page 230
Appendix 14  Inflation Rates in Eight Case Study Countries......Page 231
Appendix 15  Government Deficits as Percent of GDP in Eight Case Study Countries......Page 232
Appendix 16  Government Domestic Debt as Percent of GDP in Eight Case Study Countries......Page 233
Appendix 17  Government Foreign Debt as Percent of GDP in Eight Case Study Countries......Page 234
Appendix 19 Government and Government-Guaranteed Foreign Debt as Percent of GDP in Eight Case Study Countries......Page 236
Appendix 20  Change in Reserve Money as Percent of GDP in Eight Case Study Countries......Page 237
Appendix 21 Net Domestic Credit to Government as Percent of Aggregate Domestic Credit in Eight Case Study Countries......Page 238
Appendix 22  Reserve Money as Percent of Broad Money (M2) in Eight Case Study Countries......Page 239
Appendix 23  Bank Reserves as Percent of Bank Deposits in Eight Case Study Countries......Page 240
Appendix 24  Real Interest Rates in Eight Case Study Countries......Page 241
Appendix 25   Central Bank Governors’ Symposium Participants......Page 242
Bibliography......Page 248
Index......Page 257