![Emerging Market Economies and Financial Globalization Emerging Market Economies and Financial Globalization](https://123library.org/images/books/265673.png?w=254&h=360&fit=&c=2&assets_cache=20240420041425)
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Abstract
In the past, foreign shocks arrived to national economies mainly through trade channels, and transmissions of such shocks took time to come into effect. However, after capital globalization, shocks spread to markets almost immediately. Despite the increasing macroeconomic dangers that the situation generated at emerging markets in the South, nobody at the North was ready to acknowledge the pro-cyclicality of the financial system and the inner weakness of “decontrolled” financial innovations because they were enjoying from the “great moderation.” Monetary policy was primarily centered on price stability objectives, without considering the mounting credit and asset price booms being generated by market liquidity and the problems generated by this glut. Mainstream economists, in turn, were not majorly attracted in integrating financial factors in their models. External pressures on emerging market economies (EMEs) were not eliminated after 2008, but even increased as international capital flows augmented in relevance thereafter. Initially economic authorities accurately responded to the challenge, but unconventional monetary policies in the US began to create important spillovers in EMEs. Furthermore, in contrast to a previous surge in liquidity, funds were now transmitted to EMEs throughout the bond market. The perspective of an increase in US interest rates by the FED is generating a reversal of expectations and a sudden flight to quality. Emerging countries’ currencies began to experience higher volatility levels, and depreciation movements against a newly strong US dollar are also increasingly observed. Consequently, there are increasing doubts that the “unexpected” favorable outcome observed in most EMEs at the aftermath of the Global Financial Crisis (GFC) would remain.
"Emerging Market Economies and Financial Globalization” offers a comparative analysis of the capital account liberalization process and the variety of policy responses generated among a reduced group of Latin American and Asian countries. In particular, the book critically examines these varied responses from a three-fold perspective: macro, micro-financial and institutional. From a macro perspective, the book compares exchange rate regimes, monetary policies and capital account liberalization paths adopted at each of the selected countries. In other words, the book analyzes how emerging economies confronted the challenge imposed by the monetary trilemma posed by Mundell. The book analyzes different corner solutions (for example, exchange rate pegging) and whether there is life inside the triangle. The Asian financial crises have certainly induced a debate on the benefits of foreign exchange reserve accumulation and the increasing policy space generated since then. But emerging countries policy-makers realized the perils of sailing in uncharted waters and, consequently, began to introduce a series of instruments to prevent sudden reversals in capital flows.
The micro-financial perspective, in turn, directs our attention to the financial sector structure, how the process of financial deepening transformed it in recent years and how local authorities responded to the increasing pressures generated by an increasingly globally connected banking sector. But cross-funding, local regulation and financial stability are certainly difficult to match, even at developed countries as the European crisis demonstrates. This triplet conforms the so-called financial trilemma introduced by Schoenmaker, and analyzed in the book—particularly observing how selected countries performed it.
Finally, the institutional perspective center on the legal treatment granted to the capital account openness process—both at the multilateral and bilateral levels. From a policy perspective the interrelationship between open macro, international financial markets and institutions has been often neglected but hardly significant with sovereigns founding periodically challenged by legal constraints. The founding fathers of Bretton Woods institutions shared a common vision: avoid large imbalances created by international capital flows. Coincidences, however, vanished after the collapse of the Bretton Woods system. Thereafter leading countries’ claims for the opening of the capital accounts and financial liberalization became common parlance. Institutionally, these pressures were present at both multilateral and bilateral fore.
‘This […] work insightfully analyses the political economic problems entailed by international capital flow and financial globalization, which bring new serious challenges at macro and micro levels to such emerging markets as those in Latin America and Asia.’
—Won-Ho Kim, Dean and Professor, Graduate School of International and Area Studies, Hankuk University of Foreign Studies, South Korea
Leonardo E. Stanley reports as an associated researcher at the Center for the Study of State and Society (CEDES), Argentina. He is a graduate in economics from the School of Economics, University of Mar del Plata, Argentina; MSc in Economics from Queen Mary University, London and a MsPhil/DEA from Université d’Evry Vald’Essone, France.
‘The book is original as it encompasses theoretical chapters, using an international political economy framework as well as case studies of emerging economies in the financial globalization setting.’
—Daniela Magalhães Prates, Associate Professor of Economics, University of Campinas, Brazil
Table of Contents
Section Title | Page | Action | Price |
---|---|---|---|
Cover | Cover 1 | ||
Front Matter | i | ||
Half title | i | ||
Series information | ii | ||
Title page | iii | ||
Copyright information | iv | ||
Tables of Contents | v | ||
List of illustrations | ix | ||
Preface | xi | ||
Acknowledgements | xiii | ||
Chapters 1-10 | 1 | ||
Chapter One Introduction | 1 | ||
International Capital Flows and Macroeconomic Dilemmas | 3 | ||
Financial Deepening and the New Microeconomic Dilemmas | 4 | ||
Financial Globalization and Capital Account Management:An Institutional View | 4 | ||
A Comparative Analysis | 5 | ||
Latin America: Argentina and Brazil | 6 | ||
Asia: China, South Korea and India | 7 | ||
A Final Message and a Caveat | 8 | ||
Part 1 The Financial Globalization Journey: The General Framework | 11 | ||
Chapter Two International Capital Flows and Macroeconomic Dilemmas | 13 | ||
Introduction | 13 | ||
EMEs’ Exchange Rate Policy in an Open Macro Framework | 17 | ||
From Fears to Market Intervention | 22 | ||
Domestic Monetary Policy and ER Intervention: Sterilization | 24 | ||
International Reserves and EMEs’ Policy Space | 25 | ||
Capital Flows, Monetary Policy and the Global Financial Cycle | 29 | ||
Chapter Three Unfettered Finance and the Persistence of Instability | 33 | ||
From Financial Repression to Global and Deregulated Markets | 33 | ||
Financial Globalization and the Rise of Global Banks | 39 | ||
Global Banks’ Funding Practices and Legal Status | 45 | ||
Derivatives, OTC and Regulation: ET Is Back | 49 | ||
The Financial Trilemma: From Deregulation to Financial Re-regulation | 54 | ||
International Cooperation in a Historical Perspective | 56 | ||
Chapter Four Financial Globalization, Institutions and Growth | 63 | ||
Introduction | 63 | ||
Capital Controls’ Rationality | 64 | ||
The Global Commons: Multilateral and Bilateral Perspectives | 66 | ||
Banking Internationalization and Financial Service Deregulation under WTO–GATS | 69 | ||
The Bilateral Push towards Financial Deregulation | 71 | ||
The OTC Market and the US Push for ET Regulation | 75 | ||
Exchange Rate Policies under (Renewed) Scrutiny | 77 | ||
The Globalization Paradox and the Political Economy Perspective | 82 | ||
Part 2 A Comparative Analysis | 87 | ||
Chapter Five Argentina | 89 | ||
Introduction to Stop-Go Macroeconomics | 89 | ||
Macroeconomics or Makro: From Twin Surplus to Populism | 94 | ||
Back in Populism | 97 | ||
Financial Markets and the Financial Trilemma | 102 | ||
‘Living La Vida Loca’: Argentina’s Institutional Path | 105 | ||
Argentina and Dani Rodrik’s Political Trilemma | 108 | ||
Chapter Six Brazil | 111 | ||
Macro at the Corners: Economic Policy in Stormy Waters | 111 | ||
Playing at the Corners: How Sustainable Can a Fixed ER Scheme Be? | 113 | ||
The End of an Affair: Inflation Targeting as a New Anchor | 115 | ||
Brazil, the GFC and Beyond: A New Caiphirina Moment? | 120 | ||
The Financial System and the Trilemma: New Actors, Renewed Constraints | 124 | ||
Brazilian Capital Markets: A Brief Guide | 127 | ||
The GFC and the Financial Market | 129 | ||
Financial Trilemma in Brazil | 130 | ||
Brazil: No Longer an Institutional Outsider? | 133 | ||
Chapter Seven China | 137 | ||
From Mao to the GFC: The Comrades’ Macro | 137 | ||
China, the Global Financial Crisis and RMB Internationalization | 141 | ||
Chinese Financial Markets: A Brief History of the Chinese Banking Industry | 148 | ||
Managing the Financial Trilemma | 155 | ||
Institutional Development: Third World Leader Transformed into a Globalizer Champion | 156 | ||
Institutions and China’s Commitments | 160 | ||
Chapter Eight India | 163 | ||
Macroeconomics in an Open and Integrated World: Avoiding the Extremes | 163 | ||
Avoiding the Corners: India’s Cautious Insertion into Global Financial Markets | 164 | ||
Sailing against the Wind: India’s Performance after the GFC | 169 | ||
Financial Markets: Avoiding Financial Instability | 174 | ||
Financial Markets and Actors | 175 | ||
India and the Financial Trilemma | 179 | ||
Institutions | 180 | ||
Chapter Nine South Korea | 185 | ||
Macroeconomics from Korea Inc to Market Liberalization | 185 | ||
The 1997 Crisis and the Neo-liberal Response | 187 | ||
The GFC and Korea: Economic Turmoil and Macro-Prudential Policies | 193 | ||
Financial Market Evolution and the Financial Trilemma | 195 | ||
Korean Financial Sector, Foreign Banks and the Financial Trilemma | 201 | ||
Korea’s Institutionalist Path | 203 | ||
Part 3 Final Remarks on Financial Globalization and Local Insertion | 209 | ||
Chapter Ten Conclusions | 211 | ||
Economic Policy in a World of Pyramids and Triangles | 211 | ||
What Is the Comparative Setting Telling Us? | 213 | ||
End Matter | 217 | ||
A Short Afterword | 217 | ||
References | 219 | ||
Index | 235 |