Advanced Search
MyIDEAS: Login

Short-Run Pain, Long-Run Gain

Contents:

Author Info

  • Sergio L. Schmukler
  • Graciela Laura Kaminsky

Abstract

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging market economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16072
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/34.

as in new window
Length: 60
Date of creation: 01 Feb 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/34

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Capital controls; stock market; financial liberalization; financial sector; financial markets; domestic financial sector; repatriation of capital; mature markets; capital inflows; international finance; capital account liberalization; insider trading; capital account transactions; capital markets; stock prices; financial cycles; booms crashes; stock markets; deposit rates; capital outflows; stock exchange; international capital; international finance corporation; deposit requirement; financial system; financial institutions; duration of booms; bonds; capital flows; international capital markets; reserve requirements; stock market cycles; deposit interest; portfolio investment; deposit interest rates; interest rate ceilings; capital movements; capital market; financial deregulation; foreign capital; financial systems; international finance statistics; capital repatriation; reserve requirement; access to international capital; international capital flows; moral hazard; stock market indexes; stock market prices; capital gains; capital transactions; financial market; money market; currency crises; equity markets; foreign equity; stock price; access to international capital markets; stock index; equity capital; capital exports; cost of capital; borrowing interest rates; liberalization of capital; deposit requirements; financial structure; financial booms; deposit rate; foreign portfolio investment; foreign securities; domestic financial institutions; interest rate controls; international country risk guide; domestic interest rates; financial reform; financial repression; international bonds; interest rate deregulation; short-term capital; futures markets; stock market index; stock exchange index; domestic equity; financial liberalization episodes; bear markets; volatility of capital flows; cash deposit; domestic capital market; capital goods; bond; domestic capital; capital inflow; financial controls; stock exchanges; liberalization of capital flows; discount rate; stock market liberalization; financial globalization; brady bonds; convertible bonds; financial economics; international financial markets; bull markets; foreign stock; resident borrowers; equity participation; asset markets; financial fragility; equity shares; stock price indexes; short-term capital inflows; international financial liberalization; financial services; forward market; derivative; flows of capital; domestic financial deregulation; repressed financial systems; local stock market; deposit money banks; stocks by resident; subsidiaries; volatile capital; currency crisis; capital investments; securities market; interest rate fluctuations; financial backup facilities; financial excesses; capital account restrictions; stock cycles; financial collapses; stock returns; international financial system; financial regulations; financial stability; equilibrium asset prices; resident portfolio investment; stock market criteria; deposit money; private capital; capital market securities; foreign stocks; capital account opening; stock price fluctuations; domestic financial repression; financial systems before liberalization; money market instruments; stock price series; financial policies; capital ownership; restrictions in stock markets; stock market participants; domestic financial liberalization; capital inflow episode; financial reforms; financial intermediaries; financial turbulences; liberalization of domestic interest rates; private inflows; global capital market; derivative instruments; stock price volatility; money market interest rates; registered securities; financial market development; credit rationing; financial sector research; domestic financial system; international financial statistics; domestic money market; equity prices; mature capital markets; savings deposits; reserve requirement on loans; financial dependence; domestic interest rate ceiling; stock market fluctuations; securities markets; financial market restrictions; money market interest; international financial corporation; speculative attack; liberalization of domestic stock markets; stock market opening; equity investment; international currency; stock exchange industrial index; liberalization of stock markets; capital accounts; liberalization of capital movements; equity barriers; stock brokerage; restrictions on capital account transactions; capital transfer; mixed blessing of capital inflows; stock market replicating cycles in output; equilibrium stock prices; restrictions on acquisitions; equity share; interest rates trigger large capital; securities firms; domestic securities; restricting foreign acquisitions; financial markets to deregulation; restrictions on credit; stock investment; world capital markets; domestic financial sector criteria; international capital movements; financial restraints;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. McKinnon, Ronald I & Pill, Huw, 1997. "Credible Economic Liberalizations and Overborrowing," American Economic Review, American Economic Association, vol. 87(2), pages 189-93, May.
  2. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
  3. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  4. Philippe Martin & Hélène Rey, 2005. "Globalization and Emerging Markets: With or Without Crash?," NBER Working Papers 11550, National Bureau of Economic Research, Inc.
  5. Obstfeld, Maurice, 1998. "The Global Capital Market: Benefactor or Menace?," Center for International and Development Economics Research, Working Paper Series qt3kn3n2s8, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  6. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis," IMF Occasional Papers 161, International Monetary Fund.
  7. Demirguc-Kent, Asli & Detragiache, Enrica, 1998. "Financial liberalization and financial fragility," Policy Research Working Paper Series 1917, The World Bank.
  8. Englund, Peter, 1990. "Financial deregulation in Sweden," European Economic Review, Elsevier, vol. 34(2-3), pages 385-393, May.
  9. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  10. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  11. 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.
  12. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  13. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, 04.
  14. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, 02.
  15. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December.
  16. Allen, Franklin & Gorton, Gary, 1993. "Churning Bubbles," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 813-36, October.
  17. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
  18. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  19. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  20. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
  21. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  22. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
  23. Cecchetti, Stephen G & Lam, Pok-sang & Mark, Nelson C, 1990. "Mean Reversion in Equilibrium Asset Prices," American Economic Review, American Economic Association, vol. 80(3), pages 398-418, June.
  24. Hill,Hal, 2000. "The Indonesian Economy," Cambridge Books, Cambridge University Press, number 9780521663670, October.
  25. Frederic S. Mishkin, 2001. "Financial Policies and the Prevention of Financial Crises in Emerging Market Countries," NBER Working Papers 8087, National Bureau of Economic Research, Inc.
  26. Nada Choueiri & Graciela Laura Kaminsky, 1999. "Has the Nature of Crises Changed? A L1812Quarter Century of Currency Crises in Argentina," IMF Working Papers 99/152, International Monetary Fund.
  27. Robert S. Dohner & Ponciano Intal, Jr., 1989. "The Philippine Financial System and the Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey, pages 481-503 National Bureau of Economic Research, Inc.
  28. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What now, finance?
    by Ajay Shah in Ajay Shah's blog on 2008-05-18 16:15:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:03/34. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.