IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Economic Policy Implications of the Current Financial Instability

  • José Antonio Ocampo Gaviria

    (Columbia University)

Registered author(s):

    The pro-cyclical behavior inherent in the operation of financial markets is at the heart of the current financial crisis. Against the arguments upheld by orthodox economists, these markets do not stabilize by themselves nor tend to smooth the private spending behavior. This problem has been worsened by the fact that the current prudential regulations are also pro-cyclical. In developing countries, the crisis has blended with structural deficiencies in the operation of the global monetary and financial system, above all the strong pro-cyclical shocks they face and the need of accumulating abundant international reserves so that they can have more room to adopt counter-cyclical macroeconomic policies. Nevertheless, this rational decision of being “self-insured” against crises may have contributed to create global payment imbalances. This paper states that these two dimensions of the world crisis –the absence of a counter-cyclical prudential regulatory framework and the massive “self-insurance” of developing countries– can only be solved with global solutions. The first problem requires the adoption of a regulatory and prudential-supervision counter-cyclical framework by all the countries. The second problem requires the design of better global instruments to manage financial crises in developing countries, so that they can have more “policy room to maneuver” in the adoption of counter-cyclical macroeconomic policies.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/53-54-9-Gaviria.pdf
    Download Restriction: no

    Article provided by Central Bank of Argentina, Economic Research Department in its journal Ensayos Económicos.

    Volume (Year): 1 (2009)
    Issue (Month): 53-54 (January - June)
    Pages: 191-215

    as
    in new window

    Handle: RePEc:bcr:ensayo:v:1:y:2009:i:53-54:p:191-215
    Contact details of provider: Postal: Reconquista 266 - C1003ABF - Buenos Aires
    Phone: (54-11) 4348-3582
    Fax: (54-11) 4000-1257
    Web page: http://www.bcra.gov.ar
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57 Bank for International Settlements.
    2. José Antonio Ocampo, 2007. "The Instability and Inequities of the Global Reserve System," Working Papers 59, United Nations, Department of Economics and Social Affairs.
    3. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    4. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    5. White, William R., 2005. "Procyclicality in the Financial System: Do We Need a New Macrofinancial Stabilization Framework?," Kiel Economic Policy Papers 2, Kiel Institute for the World Economy (IfW).
    6. Serra, Narcis & Stiglitz, Joseph E. (ed.), 2008. "The Washington Consensus Reconsidered: Towards a New Global Governance," OUP Catalogue, Oxford University Press, number 9780199534098, March.
    7. Hyman P. Minsky, 1992. "The Financial Instability Hypothesis," Economics Working Paper Archive wp_74, Levy Economics Institute.
    8. José Antonio Ocampo, 2007. "The Instability and Inequities of the Global Reserve System," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 36(4), pages 71-96, December.
    9. Stiglitz, Joseph & Ocampo, Jose Antonio & Spiegel, Shari & Ffrench-Davis, Ricardo & Nayyar, Deepak, 2006. "Stability with Growth: Macroeconomics, Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199288144, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bcr:ensayo:v:1:y:2009:i:53-54:p:191-215. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Grillo)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.