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Globalization and World financial Turmoil - A Test for Israel's Economic Policy

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  • Gottlieb, Daniel

Abstract

The World financial turmoil,that beset emerging economies during much of 1997 and culminated after the Russian crisis in the second half of 1998,presents an interesting test case for economic policy in an open economy.Israel's policy response was radical,and -with the benefit of hindsight -successful in maintaining and reinforcing stability,when the odds of many emerging economies,such as Israel,were clearly at risk.Indeed several emerging markets suffered a severe setback in output,a deep and sometimes contagious fall in the value of stocks and a sharp depreciation in their exchange rates,when the world financial crisis evolved.National policy mistakes were punished by rapid capital flight,spearheaded by foreign investors and accompanied by a loss of these countries'international creditworthiness. What can we learn from Israel's experience in the late 1990s? Lesson #1:Macroeconomic stability must be maintained continually. Lesson #2:Enhance the Flexibility of the Exchange Rate Regime Lesson #3:A nominal appreciation can be consistent with a real depreciation

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3150.

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Date of creation: 03 May 2000
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Handle: RePEc:pra:mprapa:3150

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Keywords: Financial stability; Israel; Financial Vulnerability; Globalization; Sustainable Macroeconomic policy; Financial Liberalization;

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References

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  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  2. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Papers 6833, National Bureau of Economic Research, Inc.
  3. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
  4. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  5. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
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Cited by:
  1. García-Fernández, Rosa María & Gottlieb, Daniel & Palacios-González, Frederico, 2013. "Polarization, growth and social policy in the case of Israel, 1997-2008," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(15), pages 1-40.
  2. Rossitsa Rangelova, 2001. "Small Economies and the Challenge of Globalisation," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 86-103.

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