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Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals

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  • Theo S. Eicher
  • Stephen J. Turnovsky
  • Uwe Walz

Abstract

Financial market liberalizations are an integral part of economic development. While initial booms in investment and output are commonly seen as signs of successful deregulation, they often reverse at a later stage as international capital flows turn negative and economic growth slows markedly. Such reversals of fortunes have commonly been attributed to incorrect policies that supposedly followed the initial, appropriate measures. It is unclear, however, if capital flow reversals are actually the result of policy reversals, or if they occur as part of the normal transition when financial liberalization is accompanied by a single suboptimal policy. The later hypothesis has not been explored in the theoretical literature Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2000.

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  • Theo S. Eicher & Stephen J. Turnovsky & Uwe Walz, 2000. "Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 19-42, February.
  • Handle: RePEc:bla:germec:v:1:y:2000:i:1:p:19-42
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    Cited by:

    1. Lutz G. Arnold, 2002. "On the Effectiveness of Growth-Enhancing Policies in a Model of Growth Without Scale Effects," German Economic Review, Verein für Socialpolitik, vol. 3(3), pages 339-346, August.
    2. Burkhard Heer & Stefan Franz Schubert, 2011. "Unemployment and Debt Dynamics in a Highly Indebted Small Open Economy," CESifo Working Paper Series 3497, CESifo Group Munich.
    3. d'Agostino, Giorgio & Scarlato, Margherita, 2012. "Inclusive Institutions, Innovation and Economic Growth: Estimates for European Countries," MPRA Paper 43098, University Library of Munich, Germany.
    4. Thomas Christiaans, 2001. "Economic Growth, the Mathematical Pendulum, and a Golden Rule of Thumb," Volkswirtschaftliche Diskussionsbeiträge 94-01, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    5. Thomas M. Steger, 2003. "On the Mechanics of Economic Convergence," CER-ETH Economics working paper series 03/25, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    6. Heer, Burkhard & Schubert, Stefan Franz, 2012. "Unemployment and debt dynamics in a highly indebted small open economy," Journal of International Money and Finance, Elsevier, pages 1392-1413.
    7. Thomas M. Steger, 2006. "On the Mechanics of Economic Convergence," German Economic Review, Verein für Socialpolitik, vol. 7, pages 317-337, August.
    8. d'Agostino, Giorgio & Scarlato, Margherita, 2016. "Institutions, Innovation and Economic Growth in European Countries," MPRA Paper 72427, University Library of Munich, Germany.
    9. Arnold, Lutz G., 2003. "Growth in stages," Structural Change and Economic Dynamics, Elsevier, vol. 14(1), pages 55-74, March.
    10. Ching-chong Lai & Chi-ting Chin, 2010. "(In)determinacy, increasing returns, and the optimality of the Friedman rule in an endogenously growing open economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 69-100.

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