Skip to main content Accessibility help
×
Hostname: page-component-7c8c6479df-fqc5m Total loading time: 0 Render date: 2024-03-29T07:47:44.963Z Has data issue: false hasContentIssue false

6 - Financial Crises and Liberalization

Progress or Reversals?

from Part II - Macroeconomic Implications of Reforms

Published online by Cambridge University Press:  31 March 2020

Nauro F. Campos
Affiliation:
University College London
Paul De Grauwe
Affiliation:
London School of Economics and Political Science
Yuemei Ji
Affiliation:
University College London
Get access

Summary

Financial crisis could play a key role in changing the policy equilibrium concerning financial markets and institutions. Using a recent comprehensive dataset on financial liberalization across ninety-four countries for the period between 1973 and 2015, we formally test the validity of this prediction for the member states of the European Union as well as a global sample. We contribute by (a) using a new up-to-date dataset of reforms and crises and (b) subjecting it to a combination of difference-in-differences and local projection estimations. In the global sample, our findings on the causal relationship between crises and liberal reforms consistently point out a negative direction between the two, suggesting that governments react to crises by intervening in financial markets. However, in a dynamic setting with impulse responses, we also illustrate that such interventions are only temporary and liberalization process restarts after a financial crisis. In the EU sample, however, we do not find sufficient evidence to support either of these observations.

Type
Chapter
Information
Publisher: Cambridge University Press
Print publication year: 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abiad, A. and Mody, A. (2005). ‘Financial Reform: What Shakes It? What Shapes It?American Economic Review, Vol. 95, No. 1, 6688.CrossRefGoogle Scholar
Abiad, A., Detragiache, E. and Tressel, T. (2010). ‘A New Database of Financial Reforms’, IMF Staff Papers, Vol. 57, No. 2, 281302.Google Scholar
Alesina, A., Ardagna, S. and Trebbi, F. (2006). ‘Who Adjusts and When? The Political Economy of Reforms’, IMF Staff Papers, Vol. 53, No. 1, 129.Google Scholar
Bruno, M. and Easterly, W. (1996). ‘Inflation’s Children: Tales of Crises that Beget Reforms’, American Economic Review, Vol. 86, No. 2, 213217.Google Scholar
Chinn, M. D. and Ito, H. (2006). ‘What Matters for Financial Development? Capital Controls, Institutions, and Interactions’, Journal of Development Economics, Vol. 81, No. 1, 163192.Google Scholar
Denk, O. and Gomes, G. (2017). ‘Financial Re-Regulation since the Global Crisis? An Index-Based Assessment’, OECD Economics Department Working Papers, No. 1396.Google Scholar
Drazen, A. and Easterly, W. (2001). ‘Do crises Induce Reform? Simple Empirical Tests of Conventional Wisdom’, Economics & Politics, Vol. 13, No. 2, 129157.Google Scholar
Drazen, A. and Grilli, V. (1993). ‘The Benefit of Crisis for Economic Reforms’, American Economic Review, Vol. 83, No. 3, 598607.Google Scholar
Friedrich, C., Schnabel, I. and Zettelmeyer, J. (2013). ‘Financial Integration and Growth – Why is Emerging Europe Different?Journal of International Economics, Vol. 89, No. 2, 522538.Google Scholar
Giuliano, P., Mishra, P. and Spilimbergo, A. (2013). ‘Democracy and Reforms: Evidence from a New Dataset’, American Economic Journal: Macroeconomics, Vol. 5, No. 4, 179204.Google Scholar
Green, D. (1995). Silent Revolution: The Rise of Market Economics in Latin America. Cassell.Google Scholar
Jordà, Ò. (2005). ‘Estimation and Inference of Impulse Responses by Local Projections’, American Economic Review, Vol. 95, No. 1, 161182.CrossRefGoogle Scholar
Krueger, A. (1993). Political Economy of Policy Reform in Developing Countries. MIT Press.Google Scholar
Laeven, L. and Valencia, F. (2013). ‘Systemic Banking Crises Database’, IMF Economic Review, Vol. 61, No. 2, 225270.Google Scholar
Laeven, L. and Valencia, F. (2018). ‘Systemic Banking Crises Revisited’, IMF Working Paper, No. 206.Google Scholar
Langfield, S. and Pagano, M. (2016). ‘Bank Bias in Europe: Effects on Systemic Risk and Growth’, Economic Policy, Vol. 31, No. 85, 51106.Google Scholar
Loayza, N., Ouazad, A. and Rancière, R. (2018). ‘Financial Development, Growth, and Crisis: Is There a Trade-off?’ NBER Working Paper, No. 24474.Google Scholar
Lora, E. (1998). ‘What Makes Reforms Likely? Timing and Sequencing of Structural Reforms in Latin America’, Working Paper, No. 424. Inter-American Development Bank.Google Scholar
Mendoza, E. G., Quadrini, V. and Rios-Rull, J. V. (2009). ‘Financial Integration, Financial Development, and Global Imbalances’, Journal of Political Economy, Vol. 117, No. 3, 371416.Google Scholar
Mian, A., Sufi, A. and Trebbi, F. (2014). ‘Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises’, American Economic Journal: Macroeconomics, Vol. 6, No. 2, 128.Google Scholar
Mian, A., Sufi, A. and Verner, E. (2017). ‘Household Debt and Business Cycles Worldwide’, Quarterly Journal of Economics, Vol. 132, No. 4, 17551817.Google Scholar
Nelson, J. (1990). Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World. Princeton University Press.CrossRefGoogle Scholar
Pepinsky, T. B. (2012). ‘Do currency Crises Cause Capital Account Liberalization?International Studies Quarterly, Vol. 56, No. 3, 544559.Google Scholar
Perotti, R. (1999). ‘Fiscal Policy in Good Times and Bad’, Quarterly Journal of Economics, Vol. 114, No. 4, 13991436.Google Scholar
Prati, A., Massimiliano, G. O. and Papageorgiou, G. (2013). ‘Which Reforms Work and under What Institutional Environment? Evidence from a New Dataset on Structural Reforms’, Review of Economics and Statistics, Vol. 95, No. 3, 946968.Google Scholar
Ramey, V. A. and Zubairy, S. (2018). ‘Government Spending Multipliers in Good Times and Bad: Evidence from US Historical Data’, Journal of Political Economy, Vol. 126, No. 2, 850901.Google Scholar
Reinhart, C. M. and Rogoff, K. S. (2011). ‘From Financial Crash to Debt Crisis’, American Economic Review, Vol. 101, No. 5, 16761706.Google Scholar
Romer, C. D. and Romer, D. H. (2017). ‘New Evidence on the Aftermath of Financial Crises in Advanced Economies’, American Economic Review, Vol. 107, No. 10, 30723118.Google Scholar
Romer, C. D. and Romer, D. H. (2018). ‘Why Some Times Are Different: Macroeconomic Policy and the Aftermath of Financial Crises’, Economica, Vol. 85, 140.Google Scholar
Williamson, J. (1994). The Political Economy of Policy Reform. Institute for International Economics.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×