NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization

Graciela Kaminsky, Sergio Schmukler

NBER Working Paper No. 9787
Issued in June 2003
NBER Program(s):   AP   IFM

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.

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Document Object Identifier (DOI): 10.3386/w9787

Published: Graciela Laura Kaminsky & Sergio L. Schmukler, 2008. "Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles," Review of Finance, Oxford University Press for European Finance Association, vol. 12(2), pages 253-292.

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