ABSTRACT
The chapter covers the classical and Keynesian interest rate models, the theory of two rates of interest, sharia model of rate of return determination, McKinnon and Shaw Doctrine against financial repression, unorthodox monetary policy and financial repression and the futility of financial repression. McKinnon and Shaw called for a full liberalization of the financial sector and financial deepening. In contrast to established doctrine of low interest rates favored unanimously by politicians, they emphasized the merit of market-determined interest rates to reflect the rate of return in the real sector. Financial repression arises from the pressure of power groups that oppose free market mechanisms and want to secure subsidies and rent; and it arises from fiscal pressure due to excessive government expenditures, which makes further taxation politically infeasible. A main foundation of financial repression is the full employment mandate of the central bank.
