Financial liberalization and the financial euroization
Journal
Economic Development
Date Issued
2015
Author(s)
Abstract
The issue of financial liberalization is one of the most exploited
topics in the late transitioning countries’ financial crises discussions. One
thing the literature is seeking is what the role of the limited capital
movements is. Particulary, does it send a signal to the possible investors
that the country has something to hide that in terms of future
macroeconomic policies will lead to financial crisis. Along with the
debate of financial liberalization, the question on financial eurozation is
also one important issue regarding emerging or transitioning economies.
The debate on euroization is more concentrated on the determinants that
in the end conclude that one very important incentive for investors to
invest in instruments with foreign currency clause is the monetary
credibility. The distrust of the ability for one country to maintain the
inflation rate and exchange rate at a stable level merges these two issues
(financial liberzlaition and euroization) in one. The first part of the paper
presents two models, discussing the factors that affect domestic agents to
invest abroad. The second part elaborates those factors on the case of
Macedonia. Throughout the signals the deposit euroization is sending the
macroeconomic policies which the paper is concluding that if the models
are correct than there is no place for fear of large scale capital outflows in
case of financial liberalization.
topics in the late transitioning countries’ financial crises discussions. One
thing the literature is seeking is what the role of the limited capital
movements is. Particulary, does it send a signal to the possible investors
that the country has something to hide that in terms of future
macroeconomic policies will lead to financial crisis. Along with the
debate of financial liberalization, the question on financial eurozation is
also one important issue regarding emerging or transitioning economies.
The debate on euroization is more concentrated on the determinants that
in the end conclude that one very important incentive for investors to
invest in instruments with foreign currency clause is the monetary
credibility. The distrust of the ability for one country to maintain the
inflation rate and exchange rate at a stable level merges these two issues
(financial liberzlaition and euroization) in one. The first part of the paper
presents two models, discussing the factors that affect domestic agents to
invest abroad. The second part elaborates those factors on the case of
Macedonia. Throughout the signals the deposit euroization is sending the
macroeconomic policies which the paper is concluding that if the models
are correct than there is no place for fear of large scale capital outflows in
case of financial liberalization.
Subjects