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

IMF Working Papers, February 1, 2003

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

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Bibliographic details

• Authors: Sergio L. Schmukler, Graciela Laura Kaminsky
• Published: February 1, 2003
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451845280.001

Summary

• Authors: Sergio L. Schmukler, Graciela Laura Kaminsky
• Publication date: February 1, 2003
• Core question: The short- and long-run effects of financial liberalization on capital markets.
• Main conclusion:
  • Financial liberalization is followed by more pronounced boom-bust cycles in the short run.
  • Financial liberalization leads to more stable markets in the long run.
• Additional analysis: Sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects.

Methodology

• Constructed a new comprehensive chronology of financial liberalization in 28 mature and emerging market economies since 1973.
• Developed an algorithm to identify booms and busts in stock market prices.

Key findings

• Short-run effects:
  • Financial liberalization is followed by more pronounced boom-bust cycles.
• Long-run effects:
  • Financial liberalization leads to more stable markets.
• Sequencing insight:
  • Analysis of the timing/sequencing of liberalization and institutional reforms helps explain the contrasting short- and long-run outcomes.

Subjects and keywords

• Subjects:
  • 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

Content in this bundle

• Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization - WP/03/34
  • Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization - WP/03/34 (Markdown version)
  • Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization - WP/03/34 (PDF)