Financial crises, liquidity, and the international monetary system / Jean Tirole.

Format:

Book

Author/Creator:

Tirole, Jean.

Language:

English

Subjects (All):

Financial crises.

International finance.

Liquidity (Economics).

International Monetary Fund.

Physical Description:

xii, 151 pages : illustrations ; 23 cm

Place of Publication:

Princeton : Princeton University Press, [2002]

Summary:

Once upon a time, economists saw capital account liberalization -- the free and unrestricted flow of capital in and out of countries -- as unambiguously good. Good for debtor states, good for the world economy. No longer. Spectacular banking and currency crises in recent decades -- from Latin America in the early 1980s to Scandinavia a decade later to Mexico, Southeast Asia, Russia, and, quite lately, Argentina -- have shattered the consensus. In this remarkably clear and pithy volume, one of Europe's leading economists examines these crises, the reforms being undertaken to prevent them, and how global financial institutions might be restructured to this end.

Jean Tirole first analyzes the current views on the crises and on the reform of the international financial architecture. Reform proposals often treat the symptoms rather than the fundamentals, he argues, and sometimes fail to reconcile the objectives of setting effective financing conditions while ensuring that a country "owns" its reform program. A proper identification of market failures is essential to reformulating the mission of an institution such as the IMF, he emphasizes. Next he adapts the basic principles of corporate governance, liquidity provision, and risk management of corporations to the particulars of country borrowing. Building on a "dual- and commonagency perspective," he revisits commonly advocated policies and considers how multilateral organizations can help debtor countries reap enhanced benefits while liberalizing their capital accounts.

Based on the Paolo Baffi Lecture the author delivered at the Bank of Italy, this refreshingly accessible book is teeming with rich insights that researchers, policymakers, and students at all levels will find indispensable.

Contents:

1. Emerging Markets Crises and Policy Responses 1

The pre-crisis period 1

The crisis 7

IMF reforms, regulatory changes, and private sector innovations 18

2. The Economists' Views 23

Consensus view 23

Conflicting advice and the topsy-turvy principle 29

"Unrealistic" encroachments of sovereignty 36

Theories 36

3. Outline of the Argument and Main Message 47

The problem of a standard borrower 48

Why is external borrowing different? 48

Institutional and policy responses to market failure 50

4. Liquidity and Risk-Management in a Closed Economy 53

Corporate financing: key organizing principles 53

Domestic liquidity provision 70

5. Identification of Market Failure: Are Debtor Countries Ordinary Borrowers? 77

The analogy and a few potential differences 77

A dual-agency perspective 81

The government's incentives 86

A common-agency perspective 92

6. Implications of the Dual- and Common-Agency Perspectives 97

Implication 1 The representation hypothesis 97

Implication 2 Policy analysis 102

Cross-country comparisons 108

Is there a need for an international lender of last resort? 110

7. Institutional Implications: What Role for the IMF? 113

From market failure to mission design 114

Governance 116.

Notes:

"Based on the Paolo Baffi lecture given by the author at the Bank of Italy in October 2000"--P. [i].

Includes bibliographical references (pages [131]-143) and index.

ISBN:

0691099855

OCLC:

50337231