IMF’s chief economist warns that financial globalization increases shocks

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The IMF is becoming less naive about the perils of financial globalization (or at least some Fund staff are). The Fund’s Chief Economist Simon Johnson’s blog notes that “… the spread of financial globalization since 1987 means that shocks can jump to faraway and seemingly unconnected places with extraordinary speed. Shocks can also hit places with no apparent weaknesses in their macro policies and regulatory framework”. This is far from the IMF’s position some ten years ago when, pre Asia-crisis, the Fund promoted financial liberalization without much thought to what happens if short-term capital flows reverse themselves.

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