Financial Globalization, Financial Regulation, and Macroeconomic Policy

Since the beginning of the 1980s, an increasing deepening and integration of global financial markets, parallelly with the integration of markets for goods, services, and (partly) labor, has changed conditions, in which national macroeconomic (monetary, fiscal, and income) and microeconomic (regulatory) policies are conducted. It has also increased the demand for international coordination of national macroeconomic and regulatory policies, which is only partly satisfied. In this chapter,¹ we will analyze factors and forces staying behind financial globalization (Section 27.1), micro- and macroeconomic benefits and costs of financial globalization (Section 27.2), the impact of unrestricted capital movement on balance-of-payment (BoP) management (Section 27.3), policies, which may (partly) impact the size, direction, and structure of capital flows (Section 27.4), impact of financial globalization on monetary (Section 27.5) and fiscal policy (Section 27.6), challenges to regulatory policies, and need of international policy coordination (Section 27.7). Section 27.8 offers short conclusions.