Munich Personal RePEc Archive

Globalization and World financial Turmoil - A Test for Israel's Economic Policy

Gottlieb, Daniel (2000): Globalization and World financial Turmoil - A Test for Israel's Economic Policy. Published in: Small Economies Adjustment to global Tendencies (2000): pp. 213-244.

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Abstract

The World financial turmoil,that beset emerging economies during much of 1997 and culminated after the Russian crisis in the second half of 1998,presents an interesting test case for economic policy in an open economy.Israel's policy response was radical,and -with the benefit of hindsight -successful in maintaining and reinforcing stability,when the odds of many emerging economies,such as Israel,were clearly at risk.Indeed several emerging markets suffered a severe setback in output,a deep and sometimes contagious fall in the value of stocks and a sharp depreciation in their exchange rates,when the world financial crisis evolved.National policy mistakes were punished by rapid capital flight,spearheaded by foreign investors and accompanied by a loss of these countries'international creditworthiness. What can we learn from Israel's experience in the late 1990s? Lesson #1:Macroeconomic stability must be maintained continually. Lesson #2:Enhance the Flexibility of the Exchange Rate Regime Lesson #3:A nominal appreciation can be consistent with a real depreciation

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