Financial Crises, Liquidity, and the International Monetary System by Jean TiroleFinancial Crises, Liquidity, and the International Monetary System by Jean Tirole

Financial Crises, Liquidity, and the International Monetary System

byJean Tirole

Paperback | June 23, 2015

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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 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 common-agency 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.

Jean Tirole, the winner of the 2014 Nobel Prize in Economics, is chairman of the Foundation Jean-Jacques Laffont at the Toulouse School of Economics, scientific director of Toulouse's Industrial Economics Institute, and annual visiting professor of economics at the Massachusetts Institute of Technology. His books include The Theory of...
Title:Financial Crises, Liquidity, and the International Monetary SystemFormat:PaperbackDimensions:168 pagesPublished:June 23, 2015Publisher:Princeton University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0691167044

ISBN - 13:9780691167046

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Table of Contents

Acknowledgments vii

Introduction ix

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 on 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

Discussion 88

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 113

Governance 116

8. Conclusion 129

References 131

Index 145

Editorial Reviews

"Jean Tirole uses the tools of corporate finance to analyse some key aspects of international finance. As we expect from him, we get deep and fruitful insights into issues such as borrower and lender behavior, the appropriate role of the IMF, and private sector involvement in orderly workouts. This is essential reading for all those concerned with the 'international financial architecture.'"-Richard Portes, London Business School