Managing Financial Integration and Capital Mobility -- Policy Lessons from the Past Two Decades

The accumulated experience of emerging markets over the past two decades has laid bare the tenuous links between external financial integration and faster growth, on the one hand, and the proclivity of such integration to fuel costly crises on the...

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Bibliographic Details
Main Authors:	Aizenman, Joshua, Pinto, Brian
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ARBITRAGE BAILOUT BAILOUTS BALANCE OF PAYMENTS BALANCE SHEET BALANCE SHEETS BALANCE-OF-PAYMENTS CRISES BANK BRANCHES BANK DEBT BANK LENDING BANK LOANS BANKING SYSTEM BOND BOND ISSUANCE BONDS BORROWING COSTS BUDGET CONSTRAINT BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL BASE CAPITAL FLOW CAPITAL FLOWS CAPITAL FUNDS CAPITAL GAINS CAPITAL INFLOWS CAPITAL MOBILITY CAPITAL OUTFLOWS CAPITAL STOCK CENTRAL BANK CENTRAL BANK BILLS CENTRAL BANKS COMMERCIAL BANKS CONTINGENT LIABILITIES COUNTRY RISK CREDIBILITY CURRENCY CURRENCY BOARDS CURRENCY COMPOSITION CURRENCY CRISES CURRENCY CRISIS CURRENCY MISMATCHES CURRENT ACCOUNT DEFICITS CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT DEBT CRISIS DEBT INSTRUMENTS DEBT OVERHANG DEPOSIT DEPOSIT INSURANCE DEPOSITS DERIVATIVE DERIVATIVE CONTRACTS DERIVATIVES DEVELOPING COUNTRIES DEVELOPING COUNTRY DISCLOSURE REQUIREMENTS DOMESTIC BANKING DOMESTIC BANKS DOMESTIC CAPITAL DOMESTIC CURRENCY DOMESTIC INTEREST RATE EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET COUNTRIES EMERGING MARKET COUNTRY EMERGING MARKET ECONOMIES EMERGING MARKETS EQUITY FLOWS EQUITY FUNDS EXCHANGE CONTROLS EXCHANGE RATE EXCHANGE RATE INSTABILITY EXPENDITURE EXPENDITURES EXTERNAL BORROWING EXTERNAL BORROWINGS EXTERNAL COMMERCIAL BORROWING FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSET FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL FLOWS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL LIBERALIZATION FINANCIAL OPENNESS FINANCIAL STABILITY FINANCIAL STRESS FINANCIAL SYSTEM FINANCIAL SYSTEMS FISCAL DEFICITS FISCAL POLICIES FISCAL POLICY FIXED EXCHANGE RATE FIXED EXCHANGE RATES FIXED INCOME FIXED INCOME INVESTMENT FLEXIBLE EXCHANGE RATES FORECLOSURE FOREIGN BANK FOREIGN BANKS FOREIGN CAPITAL FOREIGN CURRENCIES FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN DIRECT INVESTMENT FOREIGN EQUITY FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN INFLOWS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN PORTFOLIO INVESTMENTS FOREIGN PORTFOLIO INVESTORS FUTURES FUTURES MARKET GLOBAL ECONOMY GLOBALIZATION GOVERNMENT DEBT HOLDING HOLDINGS INCOME TAX INDEBTEDNESS INFLATIONARY EXPECTATIONS INSURANCE INSURANCE MARKETS INTEREST RATE CAP INTEREST RATE CAPS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INTEGRATION INTERNATIONAL TRADE INVENTORY INVESTMENT RATE INVESTMENT RATES LENDER LENDER OF LAST RESORT LEVY LIABILITY LIQUIDATION LIQUIDITY LOAN LOCAL BANK LOCAL CURRENCY MACROECONOMIC CRISES MACROECONOMIC CRISIS MACROECONOMIC POLICIES MACROECONOMIC POLICY MACROECONOMIC RISK MARKET ACCESS MARKET CAPITALIZATION MARKET INTEGRATION MATURITIES MATURITY MONETARY FUND MONETARY POLICY MORAL HAZARD MORTGAGE NATIONAL INVESTMENT NATIONAL SAVING NATIONAL SAVINGS OPEN ECONOMIES OPEN ECONOMY OPPORTUNITY COST OUTPUT LOSS PENSION PENSION FUNDS PERMANENT INCOME HYPOTHESIS POLITICAL ECONOMY PORTFOLIO PRICE RISK PRIVATE BANKS PRIVATE CAPITAL PRIVATE EQUITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PRUDENTIAL SUPERVISION PUBLIC DEBT PUBLIC FINANCE PUBLIC FINANCES PUBLIC INVESTMENTS REAL EXCHANGE RATE RESERVE RESERVE REQUIREMENT RESERVE REQUIREMENTS RESERVES RETURN RETURNS RISK EXPOSURE RISK NEUTRAL SAFETY NETS SAVINGS RATES SETTLEMENT SHORT-TERM CAPITAL SHORT-TERM DEBT SHORT-TERM EXTERNAL DEBT SOVEREIGN DEBT SOVEREIGN RISK STOCK MARKET STOCKS SWAP TAX TAX COLLECTION TAX ON INTEREST INCOME TAX REGIME TAX TREATMENT TRANSACTION TRANSPARENCY TREASURY TREASURY BILL TREATY VALUATION WITHHOLDING TAX
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110831145953 http://hdl.handle.net/10986/3549

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Summary:	The accumulated experience of emerging markets over the past two decades has laid bare the tenuous links between external financial integration and faster growth, on the one hand, and the proclivity of such integration to fuel costly crises on the other. These crises have not gone without learning. During the 1990s and 2000s, emerging markets converged to the middle ground of the policy space defined by the macroeconomic trilemma, with growing financial integration, controlled exchange rate flexibility, and proactive monetary policy. The OECD countries moved much faster toward financial integration, embracing financial liberalization, opting for a common currency in Europe, and for flexible exchange rates in other OECD countries. Following their crises of 1997-2001, emerging markets added financial stability as a goal, self-insured by building up international reserves, and adopted a public finance approach to financial integration. The global crisis of 2008-2009, which originated in the financial sector of advanced economies, meant that the OECD "overshot" the optimal degree of financial deregulation while the remarkable resilience of the emerging markets validated their public finance approach to financial integration. The story is not over: with capital flowing in droves to emerging markets once again, history could repeat itself without dynamic measures to manage capital mobility as part of a comprehensive prudential regulation effort.

Managing Financial Integration and Capital Mobility -- Policy Lessons from the Past Two Decades

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