Global Shock, Risks, and Asian Financial Reform
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Global Shock, Risks, and Asian Financial Reform

Edited by Iwan J. Aziz and Hyun S. Shin

The growth of financial markets has clearly outpaced the development of financial market regulations. With growing complexity in the world of finance and the resultant higher frequency of financial crises, all eyes have shifted toward the current inadequacy of financial regulation. This book expertly examines what this episode means for Asia’s financial sector and its stability, and what the implications will be for the region’s financial regulation. By focusing on legal and institutional frameworks the book also elaborates on various issues and challenges in terms of how financial liberalization can maximize the benefits and minimize the risks of crisis.
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Chapter 4: Monetary aggregates and global liquidity: evidence from individual firm data from Asia

Hyun Song Shin and Laura Yi Zhao


Changing domestic financial conditions form the backdrop for the determination of asset prices and credit conditions. The earlier chapters in this volume have examined the impact of capital flows through the operation of banking systems that are open to various degrees to funding from the global banking system. However, in some financial systems that are at an early stage of development or where the banking sector is restricted by regulation from having access to the global banking system, the impact of global financial conditions may show up in different ways from those economies with banking systems that are fully open to global conditions. In particular, the distinction between core and non-core liabilities of the banking system will look different, although the principles from the system-wide accounting framework described in earlier chapters in this volume will continue to apply. For an economy with a large trade sector, nonfinancial exporting firms can be expected to play an important role in the transmission of financial conditions. In this chapter, we explore the transmission of global financial conditions to the domestic economy through the balance sheet management of nonfinancial firms.

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