It is widely recognized that such policies, particularly below-market interest
rates and selective allocation of credit, are not without cost. One view, associated
with McKinnon (1973), is that these policies lead to financial repression:
without a market allocation mechanism, savings and-credit will be misallocated.
Thus, it became popular to argue for financialiberalization and relaxation
of government regulations, especially those that held interest rates on loans below
market-clearing levels.
It is widely recognized that such policies, particularly below-market interestrates and selective allocation of credit, are not without cost. One view, associatedwith McKinnon (1973), is that these policies lead to financial repression:without a market allocation mechanism, savings and-credit will be misallocated.Thus, it became popular to argue for financialiberalization and relaxationof government regulations, especially those that held interest rates on loans belowmarket-clearing levels.
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