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The Global Capital Market: Benefactor or Menace?

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  • Maurice Obstfeld

Abstract

This paper reviews the theoretical functions, history, and policy problems raised by the international capital market. The goal is to offer a perspective on both the considerable advantages the market offers and on the genuine hazards it poses, as well as on the avenues through which it constrains national policy choices. A duality of benefits and risks is inescapable in the real world of asymmetric information and imperfect contract enforcement. I argue, however, that in confronting the global capital market there is no reason to depart from conventional economic wisdom. The way to maximize net benefits is to encourage economic integration while attacking concomitant distortions and other unwanted side-effects at, or close to, their sources.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6559.

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Date of creation: May 1998
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Publication status: published as Journal of Economic Perspectives, Vol. 12 (Fall 1998): 9-30.
Handle: RePEc:nbr:nberwo:6559

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  1. Obstfeld, Maurice, 1992. "Risk-Taking, Global Diversification, and Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 688, C.E.P.R. Discussion Papers.
  2. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262700441, December.
  3. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  4. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  5. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 545-570, September.
  6. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, Elsevier, vol. 51(1), pages 117-138, October.
  7. Obstfeld, Maurice & Taylor, Alan M, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1633, C.E.P.R. Discussion Papers.
  8. Michael P. Dooley, 1995. "A Survey of Academic Literature on Controls over International Capital Transactions," NBER Working Papers 5352, National Bureau of Economic Research, Inc.
  9. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1315, C.E.P.R. Discussion Papers.
  10. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(2), pages 123-139, Spring.
  11. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 57, July.
  12. Barry Eichengreen., 1990. "One Money for Europe? Lessons from the US Currency Union," Economics Working Papers, University of California at Berkeley 90-132, University of California at Berkeley.
  13. Morris Goldstein & Michael Mussa, 1993. "The Integration of World Capital Markets," IMF Working Papers 93/95, International Monetary Fund.
  14. Alesina, Alberto F & Grilli, Vittorio & Milesi-Ferretti, Gian Maria, 1993. "The Political Economy of Capital Controls," CEPR Discussion Papers, C.E.P.R. Discussion Papers 793, C.E.P.R. Discussion Papers.
  15. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market," IMF Working Papers 96/38, International Monetary Fund.
  16. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
  17. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  18. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
  19. Guillermo A. Calvo & Enrique G. Mendoza, 1997. "Rational herd behavior and the globalization of securities markets," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 120, Federal Reserve Bank of Minneapolis.
  20. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, American Economic Association, vol. 81(2), pages 222-26, May.
  21. Golub, Stephen S., 1990. "International capital mobility: net versus gross stocks and flows," Journal of International Money and Finance, Elsevier, Elsevier, vol. 9(4), pages 424-439, December.
  22. Officer,Lawrence H., 2007. "Between the Dollar-Sterling Gold Points," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521038218.
  23. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  24. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(3), pages 37-54, Summer.
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