In an overheating economy, is financial liberalization useless in the short term?
Jan.11, 2009 in
Economy
I think financial liberalization is useless if your economy is overheating as it will create a boom and an overheating economy doesn’t need more growth in the short term. Therefore, reform should be made when the economy is not growing fast as we would like.
Is this true?
Therefore, if your economy is growing very fast to the point of overheating, there is no advantage in liberalizing the financial sector in the short term, as it would only worsen the overheating.
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January 13th, 2009 at 10:32 pm
There is no base in believing that financial liberalization would create more overheating. However it would give it resilience in a downturn.
January 16th, 2009 at 6:33 pm
it is hard to say whether an economy is overheated or not. If everything is under control or under manageable growing situation, then that is not in an overheating regardless how fast it grows. the economy of nation is always under adjustment constantly for pursuing the best balanced growth. financial liberalization is only a kind of economic adjustment which depends on the economic situation and economic strategy of a nation’s further development. it may generate more growth, but does not have to cause overheating…overheat is actually a bubble blowing process, on the other hand financial liberalization may be a part of regulatory reinforcement and openness…