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Review of interest rate policies in selected developing countries 1970-1982 (English)

The development policy concept of governmental raising of interest rates to positive levels as a means of influencing financial sector performance is reviewed and questioned here in light of the experience of ten developing countries. The paper shows that in nine of the ten countries, two different results occurred as a result of governmental intervention in interest rates. The first outcome shows low inflation and mildly negative real rates which average only a few percentage points below the corresponding averages of industrialized countries. The second result shows high inflation and highly negative real rates which average ten to twenty five percentage points lower than those of the industrialized countries. Besides direct and indirect interest rate controls, the governments in the sample countries intervened extensively in financial markets to affect the allocation of resources. This intervention included large directed credit programs, public ownership of financial institutions and public sector borrowing. The paper goes on to conclude that narrow concern for raising real interest rates to positive levels should give way to broader concerns for improvements in the financial system as a whole and for greater consistency between financial and macroeconomic policies.


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    Hanson, James A. Neal, Craig R.

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    Departmental Working Paper

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    The World Region,

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    Review of interest rate policies in selected developing countries 1970-1982

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Hanson, James A. Neal, Craig R.

Review of interest rate policies in selected developing countries 1970-1982 (English). Industry and finance series,no. IAF 14 Washington, D.C. : World Bank Group.