Read e-book online Financial Developments in National and International Markets PDF

By Jesús Ferreiro, Felipe Serrano, P. Arestis

ISBN-10: 1403996296

ISBN-13: 9781403996299

This publication deals a accomplished research of the issues that the present operating of capital markets are producing on either built and constructing economies. It will pay targeted consciousness to the explanations explaining the risky and unstable operating of foreign monetary markets and to the implications of that behaviour on either the commercial functionality of the concerned nations and at the monetary rules applied.

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Example text

To truly explain behaviour, is it sufficient to say that the agent prefers to behave that way? It seems that economics is flexible enough to accommodate many types of preferences, but leaves us without a compass to discern their deeper implications. This is reflected in the results above. Certain analytical results have been derived, but few would regard them as a full analysis of what some regard as imperialism. As one last question, suppose we observe a preference for sovereignty. We can then rationalize the nation’s behaviour in rejecting loans.

Taylor (1998) argues that credit expansion and overborrowing begin with the adoption of a credible economic liberalization programme, as it gives rise to a positive interest rate spread, because the nominal interest rate usually falls by less than the decrease in the expected rate of devaluation. This fuels a steady capital inflow, causing the domestic money supply to increase. If the central bank sterilizes, a further increase in the domestic interest rate leads to an even higher interest-rate spread, stimulating even a greater inflow.

Second, the capital outflow would self-correct by pushing interest rates higher, which would then reverse the outflow. More often than not, neither mechanism worked, as the two tended to clash with each other. As remarked above, the expectation of further increases in interest rates initially stimulated an outflow as investors tried to avoid capital losses by exiting sooner rather than later. Thus interest rates had to reach exorbitantly high levels before the capital outflow could be stopped at all, let alone reversed.

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Financial Developments in National and International Markets by Jesús Ferreiro, Felipe Serrano, P. Arestis


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