Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization

By Sergio L. Schmukler, Graciela Laura Kaminsky

February 1, 2003

Preview Citation

Format: Chicago

Sergio L. Schmukler, and Graciela Laura Kaminsky. Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization, (USA: International Monetary Fund, 2003) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging market economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.

Subject: Balance of payments, Capital account, Economic sectors, Emerging and frontier financial markets, Financial markets, Financial sector, Financial services, Real interest rates, Stock markets

Keywords: Asia and Pacific, Booms, Busts, Capital account, Capital controls, Emerging and frontier financial markets, Europe, Financial cycles, Financial integration, Financial liberalization, Financial sector, Global, Insider trading, Liberalization episode, Liberalization reform, Mature market, Real interest rates, Repression times, Short-run liberalization, Stock market prices, Stock markets, WP

Publication Details

Pages:

60
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2003/034
Stock No:

WPIEA0342003
ISBN:

9781451845280
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers