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Perspective Paper on Financial Instability

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  • Henry, Peter B.

    (Stanford U)

Abstract

Financial instability is a major problem for the world's middle-income developing countries. Barry Eichengreen's proposal for dealing with the problem treats currency mismatches--the fact that developing countries borrow in dollars instead of their own currency--as the principal cause. I argue that institutional flaws, with monetary and fiscal policy for example, drive financial instability and also account for countries' inability to place local-currency denominated debt contracts. Since weak institutions are to blame, efforts to help countries build stronger institutions will likely yield greater benefits than narrow attempts to address currency mismatches per se.

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File URL: http://gsbapps.stanford.edu/researchpapers/library/RP1866.pdf
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Bibliographic Info

Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1866.

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Date of creation: Aug 2004
Date of revision:
Handle: RePEc:ecl:stabus:1866

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Postal: Stanford University, Stanford, CA 94305-5015
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Web page: http://gsbapps.stanford.edu/researchpapers/
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  1. Maurice Obstfeld, 2000. "The Global Capital Market: Benefactor or Menace?," International Finance 0004001, EconWPA.
  2. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  3. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
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  10. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
  11. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  12. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
  13. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
  14. McMillan, John, 2003. "Market Design: The Policy Uses of Theory," Research Papers 1781, Stanford University, Graduate School of Business.
  15. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
  16. Henry, Peter B. & Lorentzen, Peter Lombard, 2003. "Domestic Capital Market Reform and Access to Global Finance: Making Markets Work," Research Papers 1820, Stanford University, Graduate School of Business.
  17. Stanley Fischer, 2003. "Globalization and Its Challenges," American Economic Review, American Economic Association, vol. 93(2), pages 1-30, May.
  18. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
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Cited by:
  1. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.

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