Financial Liberalization in a Small Open Economy

Juergen von Hagen () and Haiping Zhang ()

No CESifo Working Paper No. 1771, CESifo Working Paper Series from CESifo Group Munich

Abstract: We analyze the long-run and short-run implications of financial liberalization in a small open economy. Our main results are as follows. First, whether financial deregulation in one sector can improve production efficiency may depend on financial regulation in other sectors. Second, financial liberalization may have opposite welfare implications to domestic agents with different productivity in the long run. Third, although some domestic agents lose in the long run, they benefit from financial liberalization during the transitional process of deregulation. Finally, a gradual implementation helps achieve a smooth transition.

Keywords: financial frictions; financial liberalization; foreign borrowing; macroeconomic fluctuations; overshooting (search for similar items in EconPapers)
JEL-codes: E32 E44 F34 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-mac and nep-reg
Date: 2006
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Journal Article: Financial Liberalization in a Small Open Economy (2006)
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