Working Paper: NBER ID: w9787
Authors: Graciela L. Kaminsky; Sergio L. Schmukler
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 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: No keywords provided
JEL Codes: F30; F32; F33; F34; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Liberalization (F30) | Pronounced Boom-Bust Cycles (E32) |
| Financial Liberalization (F30) | Increased Volatility in Stock Market Prices (G17) |
| Financial Liberalization (F30) | Overreactions to Market Signals (G41) |
| Financial Liberalization (F30) | Enhanced Market Stability (D53) |
| Financial Liberalization (F30) | More Stable Markets (G19) |