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How Risky is Financial Liberalization in the Developing Countries?

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  • Wyplosz, Charles

Abstract

This Paper looks at the effect of domestic and external financial liberalization. Using a sample of 27 developing and developed countries, it studies the exchange market pressure and output gap effects of liberalization. The results show that developing and developed countries differ in many respects. By and large, the effects are significantly stronger in developing countries. Exchange market pressure to be strongly positive as capital flows, but reversals seem to follow systematically. Similarly, the behaviour of the output gap corresponds well to boom and bust cycles. The Paper concludes with a discussion of policy measures desirable to make liberalization safer than it has been so far.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2724.

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Date of creation: Mar 2001
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Handle: RePEc:cpr:ceprdp:2724

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Keywords: Currency Crises; Liberalization; Sequencing;

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