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What's Wrong with International Financial Markets?

IADB Research Dept. Working Paper No. 429

27 Pages Posted: 7 Jun 2001  

Eduardo Fernandez-Arias

Inter-American Development Bank (IDB)

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2000

Abstract

Recent financial crises and contagion puts into question the wisdom of capital account liberalization. There is consensus that something is terribly wrong in the way international financial markets work for developing countries and that fixing is urgent. But what is wrong? Most views in developed countries identify the problems with too much capital flows, attracted by moral hazard. However, our analysis shows that the role of this distortion is being grossly exaggerated and that, in contrast, the main distortions in international financial markets are associated with capital flows being too little, restricted by sovereign risk, and too volatile because of market failures.

Keywords: international financial architecture, financial rescue, bailout, financial crisis, liquidity crisis, financial contagion

JEL Classification: F33, F34, G15

Suggested Citation

Fernandez-Arias, Eduardo and Hausmann, Ricardo, What's Wrong with International Financial Markets? (August 2000). IADB Research Dept. Working Paper No. 429. Available at SSRN: https://ssrn.com/abstract=238629 or http://dx.doi.org/10.2139/ssrn.238629

Eduardo Fernandez-Arias

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States
202-623-3783 (Phone)
202-623-2481 (Fax)

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

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