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

Author/Editor:

Sergio L. Schmukler ; Graciela Laura Kaminsky

Publication Date:

February 1, 2003

Electronic Access:

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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.

Series:

Working Paper No. 03/34

Subject:

English

Publication Date:

February 1, 2003

ISBN/ISSN:

9781451845280/1018-5941

Stock No:

WPIEA0342003

Format:

Paper

Pages:

60

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