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What's Wrong with International Financial Markets?

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  • Ricardo Hausmann
  • Eduardo Fernández-Arias

    ()

Abstract

Recent financial crises and contagion call into question the wisdom of capital account liberalization. There is consensus that something is terribly wrong in the way international financial markets work for developing countries and that fixing is urgent. But what is wrong? Most views in developed countries identify the problems with too much capital flows, attracted by moral hazard. However, our analysis shows that the role of this distortion is being grossly exaggerated and that, in contrast, the main distortions in international financial markets are associated with capital flows being too little, restricted by sovereign risk, and too volatile because of market failures.

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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4225.

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Date of creation: Aug 2000
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Handle: RePEc:idb:wpaper:4225

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  1. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  3. Roberto Chang & Andres Velasco, 1998. "The Asian Liquidity Crisis," NBER Working Papers 6796, National Bureau of Economic Research, Inc.
  4. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing in Credit Markets: International Evidence," Research Department Publications 3069, Inter-American Development Bank, Research Department.
  5. Buiter, Willem H & Sibert, Anne, 1999. "UDROP: A Small Contribution to the New International Financial Architecture," CEPR Discussion Papers 2138, C.E.P.R. Discussion Papers.
  6. Willem H. Buiter & Anne Sibert, 1999. "UDROP: a small contribution to the international financial architecture," LSE Research Online Documents on Economics 20224, London School of Economics and Political Science, LSE Library.
  7. Dooley, Michael P, 2000. "A Model of Crises in Emerging Markets," Economic Journal, Royal Economic Society, vol. 110(460), pages 256-72, January.
  8. Bayoumi, Tamim A. & Rose, Andrew K., 1993. "Domestic savings and intra-national capital flows," European Economic Review, Elsevier, vol. 37(6), pages 1197-1202, August.
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Cited by:
  1. Kawai, Masahiro & Takagi, Shinji, 2000. "Proposed strategy for a regional exchange rate arrangement in post-crisis East Asia," Policy Research Working Paper Series 2503, The World Bank.

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