Journal of Economic Perspectives: Vol. 12 No. 4 (Fall 1998)


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The Global Capital Market: Benefactor or Menace?

Article Citation

Obstfeld, Maurice. 1998. "The Global Capital Market: Benefactor or Menace?" Journal of Economic Perspectives, 12(4): 9-30.

DOI: 10.1257/jep.12.4.9


This paper reviews the theoretical functions, history, and policy problems raised by the international capital market. The goal is to offer a perspective on both the considerable advantages the market offers and on the genuine hazards it poses, as well as on avenues through which it constrains national policy choices. A duality of benefits and risks is inescapable in the real world of asymmetric information and imperfect contract enforcement. The author argues, however, that, in confronting the global capital market, the way to maximize net benefits is to encourage economic integration while attacking concomitant distortions and unwanted side effects at, or close to, their sources.

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Obstfeld, Maurice (U CA, Berkeley)

JEL Classifications

F02: International Economic Order
F30: International Finance: General
F21: International Investment; Long-term Capital Movements
O19: International Linkages to Development; Role of International Organizations
E52: Monetary Policy


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