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Globalization, Crisis Contagion and the Reform of the International Financial Architecture

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    Abstract

    The process of globalization has integrated financial markets and cross-border capital flows. This has resulted in the hyper mobility of capital and increased the vulnerability of nations to speculative attacks on their currencies. Capital flows deliver benefits in a first-best world. However, in a second-best world capital controls can reduce the welfare losses due to information asymmetry and other distortions. The speed and sequencing of capital account liberalization are critical to minimize the exposure of an economy to currency crises. Various types of currency crises and resulting contagion and its regional nature have been reviewed. Crisis contagion poses a systemic threat to the stability of the global financial system. Therefore the reform of the international financial architecture in order to minimize the occurrence of crises and crises contagion is matter of utmost importance. The role of the key players in the arena of global capital flows and the proposals for redesigning the international financial architecture are critically reviewed.

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    File URL: http://espace.library.uq.edu.au/eserv/UQ:11063/DP300Jan02.pdf
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    Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 300.

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    Date of creation: Jan 2002
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    Handle: RePEc:qld:uq2004:300

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    1. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
    2. Amar Bhattacharya & Marcus Miller, 1999. "Coping with Crises: Is There a "Silver Bullet"?," CSGR Hot Topics: Research on Current Issues 06, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
    3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    4. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
    5. 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.
    6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    7. McKinnon, Ronald I., 1982. "The order of economic liberalization: Lessons from Chile and Argentina," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 17(1), pages 159-186, January.
    8. Reuven Glick & Andrew K. Rose, 1998. "Contagion and trade: why are currency crises regional?," Pacific Basin Working Paper Series 98-03, Federal Reserve Bank of San Francisco.
    9. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
    10. 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.
    11. Fischer, Stanley, 1999. "Reforming the International Financial System," Economic Journal, Royal Economic Society, vol. 109(459), pages F557-76, November.
    12. Miller, Merton, 1998. "Asian financial crisis," Japan and the World Economy, Elsevier, vol. 10(3), pages 355-358, July.
    13. Michael Mussa & Giovanni Dell'Ariccia & Barry J. Eichengreen & Enrica Detragiache, 1998. "Capital Account Liberalization," IMF Occasional Papers 172, International Monetary Fund.
    14. Stiglitz, Joseph E, 1999. "The World Bank at the Millennium," Economic Journal, Royal Economic Society, vol. 109(459), pages F577-97, November.
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