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Crises, Capital Controls, and Financial Integration

  • Eduardo Yeyati
  • Sergio Schmukler
  • Neeltje Van Horen

This paper analyzes the effects of capital controls and crises on financial integration, using stocks from emerging economies that trade in both domestic and international markets. The cross market premium provides a valuable measure of how capital controls and crises affect international financial integration. The paper shows that capital controls affect cross market premium in a sustainable way. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens in case of capital outflows. Crises affect financial integration by generating more volatility in the premium and putting more downward pressure on domestic prices. [ADBI WP no.121]

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Paper provided by eSocialSciences in its series Working Papers with number id:2099.

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Date of creation: Jun 2009
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Handle: RePEc:ess:wpaper:id:2099
Note: Institutional Papers
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  1. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
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  4. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2004. "The price of inconvertible deposits: the stock market boom during the Argentine crisis," Economics Letters, Elsevier, vol. 83(1), pages 7-13, April.
  5. Levy Yeyati, Eduardo & Schmukler, Sergio L. & Van Horen, Neeltje, 2006. "International financial integration through the law of one price," Policy Research Working Paper Series 3897, The World Bank.
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  7. Henry, Peter B., 2006. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1951, Stanford University, Graduate School of Business.
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  9. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-29, December.
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  12. Ross Levine & Sergio Schmukler, 2005. "Internationalization and Stock Market Liquidity," NBER Working Papers 11894, National Bureau of Economic Research, Inc.
  13. Richard N. Cooper, 1999. "Should Capital Controls be Banished?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 89-142.
  14. Kevin Cowan & Jose De Gregorio, 2005. "International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile," Working Papers Central Bank of Chile 322, Central Bank of Chile.
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  19. Le Fort Varela, Guillermo & Lehmann, Sergio, 2003. "The unremunerated reserve requirement and net capital flows: Chile in the 1990s," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
  20. Eduardo Levy Yeyati & Sergio L. Schmukler & Neeltje Van Horen, 2008. "Emerging Market Liquidity and Crises," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 668-682, 04-05.
  21. Graciela Laura Kaminsky & Sergio L. Schmukler, 2008. "Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles," Review of Finance, European Finance Association, vol. 12(2), pages 253-292.
  22. repec:kap:eurfin:v:10:y:2006:i:1:p:153-187 is not listed on IDEAS
  23. Sergio L. Schmukler & Graciela Laura Kaminsky, 2003. "Short-Run Pain, Long-Run Gain; The Effects of Financial Liberalization," IMF Working Papers 03/34, International Monetary Fund.
  24. Levy Yeyati, Eduardo & Schmukler, Sergio L. & Van Horen, Neeltje, 2009. "International financial integration through the law of one price: The role of liquidity and capital controls," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 432-463, July.
  25. Ross Levine & Sergio L. Schmukler, 2005. "Internationalization and the Evolution of Corporate Valuation," NBER Working Papers 11023, National Bureau of Economic Research, Inc.
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