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Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization

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  • Graciela Kaminsky
  • Sergio Schmukler

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 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9787.

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Date of creation: Jun 2003
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Handle: RePEc:nbr:nberwo:9787

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  1. What now, finance?
    by Ajay Shah in Ajay Shah's blog on 2008-05-18 16:15:00
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