Sunday, May 18, 2008

What now, finance?

Now that the global financial disturbances of 2007 and 2008 seem to be subsiding, it's interesting to take stock of where we stand, what we have learned, and where we go from here. I was personally unimpressed by many writers in the Financial Times who, I feel, lost their heads in 2007 and 2008. The Economist has a section in the latest issue which impressed me with interesting insights and clear thinking. There is a main piece, and then there are these nice articles in it:

While on this subject, see Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles by Graciela Kaminsky and Sergio Schmukler; their abstract says: The views on financial liberalization are quite conflictive. Many argue that it triggers financial bubbles and crises. Others claim that financial liberalization allows markets to function properly and capital to move to its most profitable destination. The empirical evidence on these effects is not robust. This paper constructs a new comprehensive chronology of financial liberalization and shows that a key reason for the inconclusive evidence is that the effects of liberalization are time-varying. Financial liberalization is followed by large booms and busts only in the short run. In the long run institutions improve and financial markets tend to stabilize.

1 comment:

  1. Ajay,

    I know you've been pretty vocal on letting rupee appreciate as a solution to the current inflation problem. Is there literature which discusses the impact of commodity inflation and price hikes on the Indian Rupee? I know Goldman just came out with an year end target for crude at $147 (up from 100 odd)
    Assuming that the commodity prices stay up for the next 12 months, do you have any idea what would happen to the USD/INR? Shouldn't the rupee depreciate in that situation?

    Thanks for reading till here. I've learnt a lot from reading your blog.

    Regards,
    -Sajal

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