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The Global Capital Market: Benefactor or Menace?

  • Maurice Obstfeld

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 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. The author argues, however, that, in confronting the global capital market, the way to maximize net benefits is to encourage economic integration while attacking concomitant distortions and unwanted side effects at, or close to, their sources.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 4 (Fall)
Pages: 9-30

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Handle: RePEc:aea:jecper:v:12:y:1998:i:4:p:9-30
Note: DOI: 10.1257/jep.12.4.9
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  1. Guillermo A. Calvo & Morris Goldstein & Eduard Hochreiter (ed.), 1996. "Private Capital Flows to Emerging Markets after the Mexican Crisis," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 49.
  2. Guillermo A. Calvo & Enrique G. Mendoza, 1997. "Rational herd behavior and the globalization of securities markets," Discussion Paper / Institute for Empirical Macroeconomics 120, Federal Reserve Bank of Minneapolis.
  3. 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.
  4. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-29, December.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market; In Search of a Theory," IMF Working Papers 96/38, International Monetary Fund.
  7. Michael Mussa & Morris Goldstein, 1993. "The integration of world capital markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 245-330.
  8. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  9. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402 National Bureau of Economic Research, Inc.
  10. Michael P. Dooley, 1995. "A Survey of Academic Literatureon Controls Over International Capital Transactions," IMF Working Papers 95/127, International Monetary Fund.
  11. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
  12. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  13. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
  14. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferrett, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc.
  15. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy (IfW).
  16. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
  17. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
  18. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  19. Golub, Stephen S., 1990. "International capital mobility: net versus gross stocks and flows," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 424-439, December.
  20. Horst Siebert, 1997. "Labor Market Rigidities: At the Root of Unemployment in Europe," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 37-54, Summer.
  21. 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.
  22. Eichengreen, Barry, 1990. "One Money for Europe? Lessons from the US Currency Union," Department of Economics, Working Paper Series qt6ks1k831, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  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. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
  25. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
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