Domestic Responses to Global Shifts

Abstract

Many scholars in the field of international political economy (IPE) consider the early 1970s to be a time of regime shift in international finance due to the collapse of the Bretton Woods system, the removal of cross-border capital control, and the growth of unfettered financial flow. These events led to a series of deregulatory initiatives in each country to make its financial sector and market more globally competitive. After the oil shocks and economic fluctuation of the 1970s, a period of benign economic and financial stability, called the Great Moderation, arrived in the 1980s and continued until the early 2000s in most developed countries (Bean 2010; Bernanke 2004). During this relatively benevolent period, global imbalances accumulated, interest rates were kept low, and capital markets expanded with complex financial instruments and the involvement of various new financial actors. Global imbalances and credit expansion created conditions for financial volatility in the lead-up to the 2008 global financial crisis.