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Private Finance and Public Policy

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  • Garry J. Schinasi

Abstract

This paper articulates a logical foundation-drawn from disparate literatures-for understanding why safeguarding financial stability is an important economic policy objective. The paper also explains why private aspects of finance provide broader social economic benefits and have the characteristics of public goods. Unique aspects of finance are examined, as are the linkages between finance, money, and the real economy. Sources of market imperfections in finance are identified and their implications are analyzed. The arguments imply that reaping the full private and social economic benefits of finance requires both private-collective and public-policy involvement as well as a delicate balance between maximizing the benefits of positive externalities (and public goods) and minimizing the costs (including potential instabilities) of other sources of market imperfections in finance.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/120.

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Length: 43
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/120

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Keywords: Financial stability; Money; Financial sector; Markets; Public finance; benefits; financial system; financial institutions; financial systems; financial markets; deposit insurance; international capital markets; moral hazard; international capital; derivatives markets; financial intermediation; financial contracts; financial instability; financial services; financial intermediaries; money market; credit derivatives; financial fragility; financial market; derivative; study leave; financial assets; systemic banking crises; financial instruments; liquid markets; financial liberalization; hedging;

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  1. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(4), pages 709-51, August.
  2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 467.
  3. Frank P. Maier-Rigaud & Jose Apesteguia, 2004. "The Role of Rivalry. Public Goods versus Common-Pool Resources," Working Paper Series of the Max Planck Institute for Research on Collective Goods, Max Planck Institute for Research on Collective Goods 2004_2, Max Planck Institute for Research on Collective Goods.
  4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Bank concentration and crises," Policy Research Working Paper Series 3041, The World Bank.
  5. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers, C.V. Starr Center for Applied Economics, New York University 88-12, C.V. Starr Center for Applied Economics, New York University.
  6. David Cass & Menahem E. Yaari, 1966. "A Re-examination of the Pure Consumption Loans Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 74, pages 353.
  7. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 8(1-2), pages 8-35, January.
  8. Garry J. Schinasi, 2003. "Responsibility of Central Banks for Stability in Financial Markets," IMF Working Papers 03/121, International Monetary Fund.
  9. Michael Bordo, 2000. "Sound Money and Sound Financial Policy," Journal of Financial Services Research, Springer, Springer, vol. 18(2), pages 129-155, December.
  10. Michael Leahy & Sebastian Schich & Gert Wehinger & Florian Pelgrin & Thorsteinn Thorgeirsson, 2001. "Contributions of Financial Systems to Growth in OECD Countries," OECD Economics Department Working Papers 280, OECD Publishing.
  11. Joseph Bisignano, 1998. "Towards an Understanding of the Changing Structure of Financial Intermediation: An Evolutionary Theory of Institutional Survival," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum, SUERF - The European Money and Finance Forum.
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