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The Evidence and Impact of Financial Globalization
 
 

The Evidence and Impact of Financial Globalization, 1st Edition

 
The Evidence and Impact of Financial Globalization, 1st Edition,Gerard Caprio,ISBN9780123978745
 
 
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G Caprio   

Academic Press

9780123978745

9780124058996

800

281 X 222

Foundational articles describing imbalances, defaults, and crises in theory and in their actual manifestations

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Key Features

    • Substantial articles by top scholars sets this volume apart from other information sources
    • Rapidly developing subjects will interest readers well into the future
    • Reader demand and lack of competitors underline the high value of these reference works

    Description

    The sharp realities of financial globalization become clear during crises, when winners and losers emerge. Crises usher in short- and long-term changes to the status quo, and everyone agrees that learning from crises is a top priority. The Evidence and Impact of Financial Globalization devotes separate articles to specific crises, the conditions that cause them, and the longstanding arrangements devised to address them. While other books and journal articles treat these subjects in isolation, this volume presents a wide-ranging, consistent, yet varied specificity. Substantial, authoritative, and useful, these articles provide material unavailable elsewhere.

    Readership

    Undergraduates and graduate students worldwide working in all areas of finance and economics. Researchers will typically be examining the global aspects and implications of their particular interests

    Gerard Caprio

    Gerard Caprio is William Brough Professor of Economics and Chair, Center for Development Economics at Williams College. He has served as the Head of Financial Sector Policy at The World Bank and Vice President and Head of Global Economics at J.P. Morgan.

    Affiliations and Expertise

    Williams College, Williamstown, MA

    View additional works by Gerard Caprio

    The Evidence and Impact of Financial Globalization, 1st Edition

    Volume 3

    Section Editors

    Preface

    Contributors

    Chapter 1. Financial Globalization and Crises: Overview

    Introduction

    Evidence on Financial Globalization

    Forces Behind Globalization

    Effects of Financial Globalization

    Monetary and Exchange Rate Policy under Financial Globalization

    Crises

    Final Words

    Acknowledgment

    References

    I: Evidence on Financial Globalization

    Chapter 2. Measurements of Capital and Financial Current Account Openness

    Measuring Financial Integration

    Coding

    Data Properties

    Uses of Measures

    Conclusions

    Acknowledgments

    References

    Chapter 3. Measurement and Impact of Equity Market Liberalization

    Introduction

    Equity Market Liberalization

    Effects of Stock Market Liberalization

    Conclusion

    Acknowledgments

    References

    Further Reading

    Chapter 4. Bilateral Financial Links

    Introduction

    Bilateral Data on External Assets and Liabilities

    What Explains Bilateral External Financial Linkages?

    Stylized Facts

    Cross-Border Financial Links and International Transmission of Shocks

    Conclusions

    See also

    Glossary

    Supplementary Materials

    Further Reading

    Relevant Websites

    Chapter 5. Global Imbalances

    The Contested Landscape of Global Imbalances

    Global Imbalances Defined

    Spendthrift America and the Saving–Investment Approach

    A US Productivity Surge and the Intertemporal Approach

    East Asian Mercantilism and Bretton Woods II Versus Self-Protection

    A Global Saving Glut?

    Imbalances and the Financial Crisis

    See also

    Acknowledgments

    Glossary

    References

    Chapter 6. Aid Flows

    Introduction

    Situating Aid Flows Within Financial Globalization

    The Particularities of Aid Flows

    Aid Effectiveness and the NAA

    Interaction of Aid Flows with the Larger Global Financial Architecture

    Appendix

    See also

    References

    II: Forces Behind Globalization

    Chapter 7. Composition of International Capital Flows: A Survey

    What the Chapter Is About

    Introduction

    Home-Court Information Advantage

    Debt Flows

    Equity Flows and Liquidity Shocks

    Moral Hazard in Debt Contracts Under Limited Enforcement

    Role of Bonds in the Presence of Home Bias in Goods and Equities

    Conclusion

    Acknowledgment

    Glossary

    References

    Chapter 8. Migrant Remittances and Development

    Introduction

    Remittances Reduce Poverty

    Remittances Improve Health and Education Outcomes of Recipient Households

    Remittances can Provide Funds for Small Business Investments and Entrepreneurial Activities

    Remittances Tend to Remain Stable and are Often Countercyclical to Crises and Natural Disasters

    Remittances can have Some Downsides

    Remittances can have a Positive Impact on Economic Growth and Development in the Presence of Supportive Institutions

    Remittances can Improve Access to Capital Markets

    Cost of Sending Remittances has Declined Steadily, but Remains High in Some Corridors

    Post Offices, Savings Cooperatives, and Mobile Money Transfers can Play an Important Role in Reaching the Poorest

    Remittances Data Need to be Improved

    The International Remittances Agenda

    References

    Chapter 9. International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey

    Introduction

    Portfolio Choice, Fund Managers’ Incentives, and Consequences for Capital Flows

    Transparency, Informational Asymmetries, Asset Allocation, and Capital Flow Volatility

    Conclusions

    Acknowledgments

    Glossary

    References

    Chapter 10. Capital Raisings

    Introduction

    Developed World: Patterns and Effects of Cross-Border Capital Raisings

    Emerging Markets

    Capital Raisings During the 2007–09 Global Financial Crisis

    Conclusion

    See also

    Glossary

    References

    Chapter 11. International Cross-listings

    Introduction

    Some New (and Old) Wisdom on International Cross-listings

    The Current State of the World Market for International Cross-listings

    Price Discovery, Multi-market Trading, and Arbitrage

    The Dynamics of Multi-market Trading

    Concluding Remarks

    Acknowledgments

    References

    Chapter 12. Disclosure of Ownership and Public Companies

    Introduction

    The Enron and Parmalat Examples

    Disclosure of Beneficial Ownership

    Related Party Transactions

    Disclosure of Beneficial Ownership of Corporate Vehicles

    Conclusion

    References

    Chapter 13. Role of Trade Finance

    Introduction

    What is Trade Finance?

    Risks Inherent in International Trade

    Existing Evidence on Trade Finance Patterns Around the World

    New Evidence on Trade Finance Patterns Around the World

    Theories of Trade Credit and Trade Finance

    Relationship Between Bank Credit and Trade Credit

    Trade Credit Versus Bank Credit during the Financial Crisis

    Trade Finance Behavior during the Most Recent Global Financial Crisis

    Role for Policy Interventions to Support Trade Finance During the Crises

    Conclusion

    Glossary

    References

    Chapter 14. Foreign Bank Participation in Developing Countries

    Introduction

    Foreign Bank Participation in Developing Countries: Trends and Regional Patterns

    The Drivers of Foreign Bank Entry

    The Consequences of Foreign Bank Entry

    Conclusions

    Acknowledgments

    Glossary

    References

    Chapter 15. Opportunistic Foreign Currency Debt Issuance

    Introduction and Overview

    Related Literature

    Long-Term IRP

    Opportunistic FC Debt Issuance

    Conclusion

    See also

    Glossary

    References

    Chapter 16. International Government Debt

    Introduction

    Trends

    The Theory of International Government Debt

    Evidence on International Borrowing and Default

    Debt Structure and Debt Crises

    Conclusions

    See also

    Acknowledgment

    Glossary

    References

    Chapter 17. Carry Trade

    Introduction

    Designing Carry Trade Strategies

    A Trading Laboratory for the Carry Trade

    The Trader’s Decision Problem

    Adjusting for Returns: KS*, AUC*, and Gain–Loss Ratio

    Are Carry Trade Returns Compensation for Risk?

    Conclusion

    Glossary

    Further Reading

    III: Effects of Financial Globalization

    Chapter 18. Capital Market Integration

    The Empirics of Financial Globalization and Growth

    Statistical Tests for Crisis Impacts of Openness

    Studies of Historical Crisis Incidence and Costs

    Calibrating Ranges for Costs of Openness-induced Crises

    Evidence from the Global Crisis of 2007–09

    Conclusion

    See also

    Glossary

    References

    Chapter 19. Collateral Benefits of Financial Globalization

    Introduction

    What Are the Theoretical Arguments for Collateral Benefits?

    What Does the Empirical Evidence Say?

    Does Financial Integration Enhance Productivity Growth?

    Conclusion

    Acknowledgments

    References

    Chapter 20. Foreign Direct Investment and Growth

    Introduction

    Overview of the Recent Empirical Literature

    Complementarities

    Channels, Mechanisms, and Linkages

    Concluding Comments

    See also

    Glossary

    References

    Chapter 21. International Technology Transfer and Foreign Direct Investment

    Introduction

    Why should we Expect FDI to be a Source of Knowledge Transfer Across International Borders?

    Evidence on Knowledge Transfer to Foreign Affiliates

    Knowledge Externalities

    Conclusions and Policy Implications

    Glossary

    References

    Chapter 22. Role of Multinational Corporations in Financial Globalization

    Introduction

    What Are the Determinants of FDI?

    Are There Any Growth Effects of FDI?

    Foreign Investment, Volatility, and Crises

    Conclusion

    References

    Chapter 23. India’s Reintegration into the World Economy in the 1990s

    From Autarky to Reintegration

    Empirical Facts About Reintegration

    Foreign Portfolio Investment in the Equity Market

    The Role of FDI

    Foreign Borrowing

    Effectiveness of Capital Controls and the Exchange Rate Regime

    Domestic Finance and International Finance

    Policy Questions About Capital Controls and Monetary Policy

    Glossary

    Further Reading

    Relevant Websites

    Chapter 24. Reforms of China’s Banking System

    Challenges and Opportunities for China’s Growing Economy and Developing Financial System

    The Dominant Role of Banks in the Financial Sector

    Further Reading

    Chapter 25. Policy Issues of China’s Financial Globalization

    China’s Capital Markets Grow in Both Importance and Scope

    Monetary and Foreign Exchange Policy

    Future Developments in China

    See also

    Glossary

    Further Reading

    Chapter 26. Financial Integration in Europe

    Financial Integration and Financial Development

    How Integrated are European Financial Markets?

    Prospects for Security Market Integration

    Prospects for Credit Market Integration

    Concluding Remarks

    See also

    Glossary

    References

    IV: Monetary and Exchange Rate Policy Under Financial Globalization

    Chapter 27. The Impossible Trinity (aka The Policy Trilemma)

    The Trilemma and Mundell–Fleming’s Framework

    The Trilemma Choices of Countries – Trends and Trade-offs

    Testing the Trilemma

    Beyond the Trilemma Triangle: International Reserves and the Impossible Trinity

    The Trilemma and the Future Financial Architecture

    See also

    Glossary

    References

    Chapter 28. Financial Globalization and Monetary Policy

    Introduction

    Globalization and Long-Term Interest Rates

    Exchange Rate Regimes and Short-Term Interest Rates

    The Financial Crisis, Liquidity, and the Credit Channel

    Conclusion

    Acknowledgment

    See also

    Glossary

    References

    Chapter 29. Interest Rate Parity

    Introduction and Overview

    Origins and Theory of IRP

    Limits to Arbitrage and Factors Associated with Parity Deviations

    Empirical Evidence on IRP from the Last 50 years

    Empirical Evidence on IRP During the Global Financial Crisis

    Conclusion and Cautionary Notes on Parity Deviations

    Appendix

    References

    Chapter 30. Exchange Rate Regimes

    Introduction

    Exchange Rate Regimes

    Why do we Care about ERR?

    Exchange Rate Policies in the Post-Bretton Woods Era

    Taking Stock

    References

    Chapter 31. Currency Unions

    Introduction

    The Benefits

    The Costs

    Concluding Remarks

    Acknowledgment

    Glossary

    References

    Chapter 32. Financial Dollarization

    Introduction

    Background

    Determinants

    Empirical Evidence

    Costs and Risks

    The Policy Agenda

    Conclusion

    Acknowledgment

    See also

    Appendix

    Glossary

    References

    V: Crises

    Chapter 33. Models of Currency Crises

    Introduction

    Causes of Currency Crises

    Association with Other Crises

    Incidence of Currency Crises

    Predicting Currency Crises

    Effects of Currency Crises

    See also

    Glossary

    References

    Relevant Websites

    Chapter 34. Predictive Indicators of Financial Crises

    Survey of Early Warning Models

    Early Warning Models by Investment Banks

    IMF Work on Early Warning Systems

    Conclusion

    See also

    References

    Chapter 35. A Perspective on Predicting Currency Crises

    Introduction

    Literature Survey

    A Model of Currency Crises

    Data Generation

    Estimating Crisis Probabilities

    Accuracy of the Estimated Probabilities

    Conclusion

    Appendix: Data Used

    References

    Chapter 36. Empirical Literature on Financial Crises: Fundamentals vs. Panic

    Introduction

    Empirical Evidence on the Role of Fundamentals

    What do we Learn from the Evidence about the Role of Panic?

    How can we Test for Panic?

    Conclusion

    See also

    Acknowledgments

    Glossary

    References

    Chapter 37. Sudden Stops in Capital Flows

    Introduction

    Empirical Definition of a Sudden Stop and Evidence on the Costs of Sudden Stops

    Costs of Sudden Stops

    Determinants of Sudden Stops

    Ex-ante Policies and Policy Responses to Sudden Stops

    Conclusion

    See also

    Glossary

    References

    Chapter 38. Definitions and Types of Financial Contagion

    Introduction

    Definitions of Contagion

    The Channels for Shock Transmission

    The Empirical Literature on Contagion

    Recent Examples of Contagion

    See also

    Further Reading

    Chapter 39. Cross-Border Banking: Regulation, Supervision, and Crisis Resolution

    Introduction

    Significance of Cross-Border Banking

    Importance of Incentive-Compatible Supervisory and Resolution Structures

    Illiquid and Insolvent Banks

    Prudential Supervision

    Conclusion

    Glossary

    Further Reading

    Chapter 40. Market-Based Approach to Financial Architecture

    Introduction

    Postwar Background

    Toward Financial Globalization 1971–80s

    Financial Globalization and ‘Governance Light’ 1990–2007

    Back to the Future of Instability and Crisis

    See also

    References

    Chapter 41. Housing Is the Business Cycle

    Introduction to the Revision

    Introduction

    The 3–3 Rule of US Real GDP

    Temporal Orderings of Components of GDP

    Multivariate Confirmation: It is a Consumer Cycle, not a Business Cycle

    Hormones and Housing: It has been a Volume Cycle, not a Price Cycle

    New Homes Nationwide have a Volume Cycle, not a Price Cycle, too

    This Time was Different

    The Phases of the Housing Financial Cycle: Hope, Hype, and Havoc

    The Conflicts between Housing and Inflation Targeting

    By the Way

    Conclusion

    Appendices

    References

    Chapter 42. US Stock Market Crisis of 1987

    Introduction

    Background

    Timeline of the Crash

    Factors That Contributed to the Severity of the Crash

    Response of the Federal Reserve

    Conclusion

    See also

    Glossary

    Further Reading

    Chapter 43. Mexican Financial Crisis of 1994–1995

    Origins of the Crisis

    The Consequences of Financial Liberalization

    The System under Stress in 1994

    Consequences of the 1994 Crisis

    What did Mexico Gain in the Long Term?

    Glossary

    References

    Further Reading

    Chapter 44. East-Asian Crisis of 1997

    Introduction

    Origins of the Crisis

    Dimensions of Vulnerability and Their Causes

    Onset of the Crisis and the Role of Contagion

    Why Was the Crisis So Protracted?

    Conclusions

    References

    Chapter 45. Financial Globalization and the Russian Crisis of 1998

    Introduction

    Russia’s 3-year Road to the 1998 Crisis

    Financial Globalization and Russia 1998

    Lessons and Insights from Russia 1998

    Concluding Remarks

    See also

    Acknowledgment

    Glossary

    References

    Chapter 46. Argentina’s Default of 2001

    Introduction

    Economic Performance Under the Convertibility Plan, 1991–98

    Economic Difficulties, 1998–2001

    Economic and Political Background

    The Default and Its Aftermath

    See also

    Glossary

    References

    Chapter 47. Assessment of Solutions to US Financial Crisis of 2008–09

    Introduction

    Measures Introduced between September 2008 and Mid-2009

    Cross-Country Snapshot as of June 2009

    Effect of Government Rescue Measures on Banks

    What Happened After June 2009: A Brief Update

    Glossary

    Further Reading

    Relevant Websites

    Chapter 48. A Cross-Country Perspective on the Causes of the Global Financial Crisis

    Introduction

    Causes of the Crisis

    The Evolution of the Crisis

    Conclusions: Crisis Resolution Going Forward and the Path to Economic Recovery

    See also

    References

    Chapter 49. Lessons and Policy Implications from the Global Financial Crisis

    Introduction

    Lessons for Macroeconomic Policy

    Lessons for Redesigning Prudential Regulation and Supervision

    Lessons for Reform of the International Financial Architecture

    Conclusion

    References

    Index

    Quotes and reviews

    "Editor Caprio…presents empirical research on the forces behind financial globalization, such as international capital flows, foreign bank participation in developing countries, and international government debt." --Reference and Research Book News, February 2013

    "This volume provides authoritative non-technical coverage of key topics related to the  globalization of financial activities and institutions, with particular and up-to-date analyses of international financial crises." --Josef Brada, Arizona State University

    "The Evidence and Impact of Financial Globalization is a collection of essays written by major specialists in each specific field of globalization, ranging from aid, foreign investment and migration to exchange rates, international government debt and financial crisis. Its 50 chapters investigate the various aspects of globalization, their determinants and impact both in abstract terms and with reference to specific countries and regions. It is an essential companion for those that want to up-date and improve their knowledge of the impressive significance acquired by financial globalization in the last two or three decades." --Nicola Acocella, Università degli Studi di Roma "La Sapienza"

    "Is mainstream theory the cause of our recent financial crisis, and will it be to blame for future crises? If theory did not cause it, it did nothing to prevent or even mitigate it. This book offers an impressive series of essays on the Great Recession, investigating financial and real causes, historical episodes, and linkages as well as domino effects. It clearly illuminates the background of our recent crisis by offering clear theoretical, empirical, and historical views of its remote causes. It cannot be absent from any economist's bookshelf." --Mauro Gallegati, Università Politecnica delle Marche

     
     
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