Unsettling Implications of Global Financial Integration
Enrique Mendoza
University of Pennsylvania
The process of global financial integration that started roughly 30 years ago had unsettling implications for macroeconomic and financial stability. These lectures aim to address some of them by proposing answers to these two questions: First, volatile capital flows have been an important source of instability and macroprudential capital controls have gained popularity as a tool to tame them, but do capital controls also have significant adverse effects on the allocation of capital, external trade, inequality and social welfare? Second, the process of financial globalization produced an era of relative prosperity marked by high liquidity and record-low real interest rates, but were these same features also key factors behind the observed increase in volatility?
The lectures are based on the following articles:
“Beware the Side Effects: Capital Controls, Trade, Misallocation and Welfare“, NBER WP 30963
“Unstable Prosperity: How Globalization Made the World Economy More Volatile,” NBER WP 30832