Financial policies and the prevention of financial crises in emerging market economies

By Frederic S. Mishkin. 2001

325 citations recorded by the source corpus.

The author defines a financial crisis as a disruption in financial markets in which adverse selection and moral hazard problems become much worse, so that financial markets are unable to efficiently channel funds to those who have the most productive investment opportunities. As financial markets become unable to function efficiently, economic activity sharply contracts. Factors that promote financial crises include, mainly, a deterioration in financial sector balance sheets, increases in interest rates and in uncertainty, and deterioration in nonfinancial balance sheets because of changes in asset prices. Financial policies in 12 areas could help make financial crises less likely in emerging market economies, says the author. He discusses: Prudential supervision. Accounting and disclosure requirements. Legal and judicial systems. Market-based discipline. Entry of foreign banks. Capital controls. Reduction of the role of state-owned financial institutions. Restrictions on foreign-dominated debt. The elimination of too-big-to-fail practices in the corporate sector. The proper sequencing of financial liberalization. Monetary policy and price stability. Exchange rate regimes and foreign exchange reserves. If the political will to adopt sound policies in these areas grows in emerging market economies, their financial systems should become healthier, with substantial gains both from greater economic growth and smaller economic fluctuations.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/de7a125d29519c33bf00aaffee8be7e312caa53b

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Citations in the corpus

Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles (2007, background): “Interestingly, we find that government reforms mostly occur following, not before, financial liberalization, suggesting that liberalization sets in motion the reforms needed for markets to operate efficiently, as indicated in Mishkin (2003) and Stulz (2005).”
Financial globalization and debt maturity in emerging economies (2006, background): “See, for example, Bekaert, Harvey, and Lundblad (2001), Henry (2000a,b), Mishkin (2001) , Obstfeld (1998), and Stultz (1999).”
The institutional and macroeconomic determinants of stock market development in emerging economies (2010, background): “Mishkin ( 2001 ) argued that financial liberalization promotes transparency and accountability, reducing adverse selection and moral hazard.”
Productivity Growth and Capital Flows: The Dynamics of Reforms (2017, background): “the center stage of international policy debate only after the East Asian and Russian financial crises of the late 1990s ( Mishkin, 2003; Stulz, 2005; Kaminsky and Schmukler, 2008).”
Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization (2002, unknown): “Stulz (1999) and Mishkin (2001) claim that financial liberalization promotes transparency and accountability, 1 These overreactions in capital markets are often explained by information asymmetries.”
The Determinants of Stock Market Development in Emerging Economies (2008, background): “Mishkin (2001) argued that financial liberalization promotes transparency and accountability, reducing adverse selection and moral hazard.”
The Mirage of Exchange Rate Regimes for Emerging Market Countries (2003, background): “…system can result in large losses in bank balance sheets that make it impossible for the monetary authorities to raise interest rates in a way that holds down inflation or to prop up the exchange rate because doing so nould likely lead to a collapse of the financial sLstem (Mishkin, 2003).”
Foreign currency debt, financial crises and economic growth: A long-run view (2010, background): “Our framework for the empirical analysis that follows highlights the links between foreign currency debt, financial crises and economic growth and follows Mishkin (2003) and Jeanne and Zettlemeyer (2005).”