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New Perspectives on Financial Globalization



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New Perspectives on Financial Globalization IMF Economic Forum April 27 2007 Jeffrey Frankel Harpel Professor of Capital Formation and Growth Kennedy School of Government Harvard University Six points Financial markets good or bad straw man Better approach to weigh pros cons We are now in the boom phase of the 3rd consecutive emerging market cycle Is this time different Recent research financial opening works best if countries have already achieved good institutions All wisdom resides in the car crash analogy 2 Financial markets good or bad is a straw man To illustrate let s play a game We will match the following names with quotes pointing out the limitations to international financial markets 3 Jagdish Bhagwati Pro globalization free trader George W Bush Republican president The Economist magazine Milton Friedman Mr Free Markets Ken Rogoff et al IMF study 2003 Robert Rubin Secy of the Treasury 1996 1999 Jeff Sachs Mr Shock Therapy George Soros leading international speculator Lawrence Summers Treasury Secy 1999 2000 James Tobin Nobel Prize winning economist Paul Volcker FRB chairman 1979 87 Friederick von Hayek libertarian John Williamson Washington consensus 1990 4 Market fundamentalists have a fundamentally flawed conception of how financial markets operate They attribute the fluctuations to external influences socalled exogenous shocks This view is plain wrong There are times like the present when financial markets swing more like a wrecking ball than a pendulum knocking over one economy after another George Soros The Crisis of Global Capitalism Public Affairs NY 1998 Liberalization of foreign financial flows is not regarded as a high priority John Williamson What Washington Means by Policy Reform in Latin American Adjustment How Much Has Happened edited by Williamson IIE Washington DC 1990 in his list of ten reforms that coined the phrase Washington consensus P 15 International loan markets are prone to self fulfilling crises in which although individual



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