Download Policy Aspects of Financial Liberalisation

Policy Aspects of Financial Liberalisation
Abiad and Mody’s (2005) index gives a good indication of the various policies
that are implemented in financial sectors. The six policy dimensions of the
financial liberalisation index are:

Credit controls: directed credit towards favoured sectors or industries,
ceilings on credit towards sectors and high reserve requirements;

Interest rate controls: direct interest rate controls by the government, or
interest rate controls through the use of floors, ceilings and interest rate
bands;

Entry barriers: licensing requirements for newly established domestic
financial institutions, entry barriers for foreign banks, and restrictions on
certain types of banking practices, such as specialized bank services
or establishing universal banks;

Operational restrictions for securities markets: restrictions on staffing,
branching and advertising, and the establishment of securities markets;

Privatization of financial institutions; and

Restrictions on international financial transactions: capital account
controls and the use of multiple exchange rates.
The degree of repression/liberalisation is measured on a four point scale:

0 means that for this particular dimension the country is fully repressed;

1 means partial repression;

2 means largely liberalized;

3 means fully liberalized.
Source:
Abiad, A., & Mody, A. (2005). Financial Reform: What Shakes It? What
Shapes It? American Economic Review, 95(1), 66-88.
_____________________________
Phillip Mellor, Massey University
For Economics Teachers Professional Development Day, 16 November 2007
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1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Financial Liberalisation Index
.
The Financial Liberalisation Index for New Zealand 1960-2005
18.00
15.00
12.00
9.00
6.00
3.00
0.00
Year
Financial Liberalisation Index
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The Sequence of Economic Reform

Reform of Financial and Capital Markets (1984-1986)

Trade Liberalisation (1984-)

Reform of Industry Regulation (1984-1990)

Monetary Policy Reform (1985-1990)

Tax Reform (1986-1989)

Corporatisation (1986-1992)

Privatisation (1988-)

Public Expenditure Changes (1989-1994)

Reform of the Labour Market (1990-1991)

Reform of Social Services (1991-)

Resource Use (1991-)
The dates refer to the period during which the bulk of reform was
implemented. Reforms without an end date were ongoing at the time of this
books publication in 1996.
The Sequence of Financial Reform

Interest Rate Controls (July 1984)

International capital restrictions (December 1984)

Currency float (March 1985)

Entry/exit barriers (1984-1987)

Full liberalisation by 1992 with the completion of the government’s
privatisation program
Source:
Bollard, A., Lattimore, R., and Silverstone, B. (Eds.). (1996). A Study of
Economic Reform: The Case of New Zealand. Amsterdam: Elsevier
Science B.V.
_____________________________
Phillip Mellor, Massey University, 16 November 2007
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