Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles

Posted: 14 Jul 2008

See all articles by Graciela Kaminsky

Graciela Kaminsky

National Bureau of Economic Research (NBER); George Washington University - Department of Economics

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Date Written: 2008

Abstract

The views on financial liberalization are quite conflictive. Many argue that it triggers financial bubbles and crises. Others claim that financial liberalization allows markets to function properly and capital to move to its most profitable destination. The empirical evidence on these effects is not robust. This paper constructs a new comprehensive chronology of financial liberalization and shows that a key reason for the inconclusive evidence is that the effects of liberalization are time-varying. Financial liberalization is followed by large booms and busts only in the short run. In the long run institutions improve and financial markets tend to stabilize.

Keywords: F30, F36, G12, G15

Suggested Citation

Kaminsky, Graciela and Schmukler, Sergio, Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles (2008). Review of Finance, Vol. 12, Issue 2, pp. 253-292, 2008. Available at SSRN: https://ssrn.com/abstract=1159633 or http://dx.doi.org/rfn002

Graciela Kaminsky (Contact Author)

National Bureau of Economic Research (NBER)

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George Washington University - Department of Economics ( email )

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HOME PAGE: http://www.gracielakaminsky.com/

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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