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

Sergio Schmukler and Graciela Kaminsky

No 2003/034, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; financial liberalization; liberalization reform; insider trading; capital controls; financial integration; stock market prices; booms; busts; financial cycles; liberalization episode; repression times; mature market; short-run liberalization; Stock markets; Emerging and frontier financial markets; Financial sector; Capital account; Real interest rates; Asia and Pacific; Europe; Global (search for similar items in EconPapers)
Pages: 60
Date: 2003-02-01
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Citations: View citations in EconPapers (213)

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Working Paper: Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization (2003)
Working Paper: Short-run pain, long-run gain: the effects of financial liberalization (2002)
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