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Perspective Paper on Financial Instability

  • Henry, Peter B.

    (Stanford U)

Financial instability is a major problem for the world's middle-income developing countries. Barry Eichengreen's proposal for dealing with the problem treats currency mismatches--the fact that developing countries borrow in dollars instead of their own currency--as the principal cause. I argue that institutional flaws, with monetary and fiscal policy for example, drive financial instability and also account for countries' inability to place local-currency denominated debt contracts. Since weak institutions are to blame, efforts to help countries build stronger institutions will likely yield greater benefits than narrow attempts to address currency mismatches per se.

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File URL: http://gsbapps.stanford.edu/researchpapers/library/RP1866.pdf
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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1866.

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Date of creation: Aug 2004
Date of revision:
Handle: RePEc:ecl:stabus:1866
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  1. Henry, Peter B. & Lorentzen, Peter Lombard, 2003. "Domestic Capital Market Reform and Access to Global Finance: Making Markets Work," Research Papers 1820, Stanford University, Graduate School of Business.
  2. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  3. Dani Rodrik, 2003. "Growth Strategies," NBER Working Papers 10050, National Bureau of Economic Research, Inc.
  4. Wendy Dobson & Gary Clyde Hufbauer & Hyun Koo Cho, 2001. "World Capital Markets: Challenge to the G-10," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 328, December.
  5. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  6. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
  7. Andrei Shleifer, 2003. "Will the Sovereign Debt Market Survive?," NBER Working Papers 9493, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld., 1998. "The Global Capital Market: Benefactor or Menace?," Center for International and Development Economics Research (CIDER) Working Papers C98-098, University of California at Berkeley.
  9. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  10. McMillan, John, 2003. "Market Design: The Policy Uses of Theory," Research Papers 1781, Stanford University, Graduate School of Business.
  11. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
  12. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
  13. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business.
  14. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  15. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
  16. Stanley Fischer, 2003. "Globalization and Its Challenges," American Economic Review, American Economic Association, vol. 93(2), pages 1-30, May.
  17. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 51-82, 04.
  18. Jeremy Bulow, 2002. "First World Governments and Third World Debt: A Bankruptcy Court for Sovereign Lending?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 229-256.
  19. Anne O. Krueger, 2000. "Conflicting Demands on the International Monetary Fund," American Economic Review, American Economic Association, vol. 90(2), pages 38-42, May.
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