The international financial system after COVID-19

Maurice Obstfeld

No WP22-2, Working Paper Series from Peterson Institute for International Economics

Abstract: In March 2020, international markets seized up with a violence unequaled since the global financial crisis nearly a dozen years before. As economies around the world locked down in the face of the potentially deadly but completely novel SARS-CoV-2 virus, stock markets fell, firms and governments scrambled for cash, liquidity strains emerged even in the market for US Treasurys, and capital flows to emerging-market and developing economies (EMDEs) reversed violently. This paper reviews the evolution of global financial markets since the global financial crisis, changes in academic thinking about these markets' domestic impacts, the strains seen during the COVID-19 crisis, and perils that may lie ahead. A key theme is that stability will be enhanced if the global community embraces reforms that elevate market resilience, rather than depending on skillful policymakers wielding aggressive but ad hoc policy interventions to ride to the rescue again.

Keywords: COVID-19 crisis; emerging markets; capital flows; international finance; global financial cycle; US dollar; Korean economy (search for similar items in EconPapers)
JEL-codes: E58 F32 F33 F36 F42 F44 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-ifn, nep-mac, nep-mon and nep-opm
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