Globalization and Emerging Markets: With or Without Crash?

Martin, Philippe; Rey, Hélène

doi:10.3386/w11550

“…Table 4 presents the decomposition of the e ects of 13 For instance, Bekaert, Harvey and Lundblad (2005), using a de facto index, find that financial liberalization leads to a one percentage point increase in annual growth. 14 With the exception of the initial level of per capita income in 1980.…”

Section: Estimation Resultsmentioning

confidence: 99%

“…In Table 3, we present the results of the estimation of a modified version of the treatment e ects model where the probit crisis model is estimated at an annual frequency while the growth model is estimated using a panel of data averaged over five-year non overlapping intervals. 14 The period of estimation covers 1981-2000 and contains four five-year intervals.…”

Section: Estimation Resultsmentioning

confidence: 99%

See 1 more Smart Citation

Decomposing the Effects of Financial Liberalization: Crises vs. Growth

Rancière

¹

,

Tornell

²

,

Westermann

³

2006

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe present a new empirical decomposition of the e.ects of financial liberalization on economic growth and on the incidence of crises. Our empirical estimates show that the direct e.ect of financial liberalization on growth by far outweighs the indirect e.ect via a higher propensity to crisis. We also discuss several models of financial liberalization and growth whose predictions are consistent with our empirical findings.

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“…First, a cost push shock, through both the cost of …nancing and (subsequently) purchasing the imported input. Second, a contraction in domestic demand, through the indirect channel, lower real wages and real depreciation, something also described in Martin and Rey (2005). Third, an expansion of the foreign demand for the domestic goods.…”

Section: Monetary Policy Under Sudden Stopsmentioning

confidence: 99%

Monetary Policy under Sudden Stops

Cúrdia

¹

2007

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This paper proposes a model to investigate the effects of monetary policy in an emerging market economy that experiences a sudden stop of capital inflows. The model features credit frictions, debt denominated in foreign currency, imported inputs, and households that have access to the international capital market only indirectly, through their ownership of leveraged firms. The sudden stop is modeled as a change in the perceptions of foreign lenders that brings about an increase in the cost of borrowing. I show that the higher the elasticity of foreign demand, the lower the contraction in output-leading, at the extreme, to the possibility of an expansion, depending on policy. A second result is that the recession is most severe in a fixed exchange rate regime. Taylor rules that react to inflation and output are more stabilizing. A comparison of alternative rules shows that low commitment to inflation stabilization allows for less contraction in output and even expansion but at the cost of much stronger contraction in capital inflows and higher interest rates. Credibility is also shown to have an important role, with low credibility and the risk of loose policy implying increased trade-offs, stronger contraction of the economy, and higher interest rates.

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“…Eichengreen (2001) notes that, under these circumstances, capital inflows may be directed to sectors in which a country doesn't have a comparative advantage. Martin and Rey (2006) constructs a model in which trade integration has a positive growth effect, but financial integration can lead to asset price crashes and financial crises. They argue that costs associated with international trade in goods and assets alone could increase the vulnerability of developing countries to financial crises.…”

Section: Theorymentioning

confidence: 99%

Financial Globalization and Economic Policies*

Köse¹,

Prasad

²

,

Rogoff

³

et al. 2010

Handbook of Development Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Financial Globalization and Economic Policies *We review the large literature on various economic policies that could help developing economies effectively manage the process of financial globalization. Our central findings indicate that policies promoting financial sector development, institutional quality and trade openness appear to help developing countries derive the benefits of globalization. Similarly, sound macroeconomic policies are an important prerequisite for ensuring that financial integration is beneficial. However, our analysis also suggests that the relationship between financial integration and economic policies is a complex one and that there are unavoidable tensions inherent in evaluating the risks and benefits associated with financial globalization. In light of these tensions, structural and macroeconomic policies often need to be tailored to take into account country specific circumstances to improve the risk-benefit tradeoffs of financial integration. Ultimately, it is essential to see financial integration not just as an isolated policy goal but as part of a broader package of reforms and supportive macroeconomic policies.JEL Classification: F02, F21, F36, F4

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Globalization and Emerging Markets: With or Without Crash?

Cited by 56 publications

References 29 publications

Decomposing the Effects of Financial Liberalization: Crises vs. Growth

Decomposing the Effects of Financial Liberalization: Crises vs. Growth

Monetary Policy under Sudden Stops

Financial Globalization and Economic Policies*

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