Abstract
An intertemporal optimizing model is used to study the welfare consequences of sequential liberalization programs in an environment where financial intermediation occurs not only in of ficial money markets but also in unofficial(curb or grey money) markets. It is shown that raising the regulated official interest rate, which is often recommended in the financial repression litera ture as a measure to mobilize savings, can be welfare reducing if either trade is restricted or the fall in the unofficial interest rate caused by the reform has a very large effect on investment and future income. Similar nonstandard conclusions are shown to hold for other types of partial refo
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