Financial crisis, liquidity and international monetary system

Author: Jean Tirole
Publisher:
Publish Date: 2003-09-01
Features: In this outstanding and insightful work, Jean Tirole analyzes the core issues of international economics with exceptionally clear thinking. For all readers dedicated to understanding the economic principles behind the recent trends of reforming the international financial system, this book is a must-read. Jean Tirole is a perfect embodiment of the significant value of economic thought, spreading the brilliance and warmth of his wisdom to every research field he engages in. In this work, he provides a seamless combination of detailed facts and rigorous theory regarding international financial crises. The dual agency and co-agency perspectives he proposes expand our understanding of the role and shortcomings of international financial systems and point the way toward reform. All experts and scholars aspiring to conduct research in this field should read this book seriously. This book represents an in-depth attempt to introduce a strong theoretical foundation into the construction of the international financial system. Its analysis is concise and elegant, and the conclusions it draws are unconventional and thought-provoking. For academic economists committed to the construction of the international financial system, this book is an indispensable reference. For a long time, economists believed that capital account liberalization—free and unrestricted capital flow between countries—was beneficial, benefiting debtor countries and the world economy as a whole. However, the banking speculation and financial crises that occurred over the past few decades—ranging from the Latin American financial crisis in the 1980s, the Scandinavian crisis in 1990, to later crises in Mexico, Southeast Asia, Russia, and the recent Argentine crisis—completely shattered this notion. In this concise and thoroughly analyzed work, one of Europe's outstanding economists, Jean Tirole, examines the characteristics of these crises, the institutional reforms needed to prevent them, and the reconstruction of the global financial system that followed. Jean Tirole first analyzes common views on financial crises and reforms of the international financial system. He argues that most reform proposals focus on the surface rather than the essence of the problem and fail to reconcile the conflicting goals of establishing effective financing restrictions while ensuring that debtor countries undertake self-reform. He emphasizes that correctly identifying market failures is essential for rebuilding the IMF's mission responsibilities. Then, he applies the basic principles of corporate finance, liquidity supply, and corporate risk management to the borrowing problems of individual countries. Based on the fundamental analytical framework of "dual agency" and "co-agency," he re-examines commonly recommended policies and considers how multilateral organizations can help debtor countries gain more benefits while opening their capital accounts. This book is revised from the author's lecture notes for the Paolo Baffi Lectures at the Bank of Italy. It is a clear, insightful, and highly rewarding work that will benefit scholars, policymakers, and students at all levels.