Economic And Financial Integration, Crisis And International Cooperation

The 2007-10 subprime crisis has caused great economic downturn. During the recovery of the US, European countries such as Greece seem to be deeply trapped by the sovereign debt crisis, which makes the future of the recovery process dim. Plenty of literatures blame on the recurrent crises on the imbalanced reserves system, the dollar standard, and propose the reform on the international reserves. However, as far as the position of dollar in the current reserve system is considered, there is much a long way to go.In order to avoid the frequent crises, an international cooperation mechanism is of key importance currently. The international cooperation played a significant role in any previous systems. And its role has to be bigger under the global economic and financial integration. The global economic and financial integration has made possible the capital movement, especially the private capital, in high sizes and frequencies, which magnifies the risk contagion. Stiglitz (2010) provided us a basic theoretical model in explaining this problem. Since previous studies have shown the close correlation of stock indices co-movement and economic and financial integration, I will empirically demonstrate the evidence of integration using stock indices of different markets. Based on the model of Stiglitz, I will introduce a cooperation variable, to discuss the role of it in reducing negative shocks. And we find that the international cooperation could effectively reduce the individual and systematical expected loss in some situations.International Monetary Fund, a product of Bretton Woods system, is one of the basis of the current international cooperation. I will give some personal recommendations on the reform of the IMF and the set up of other similar institutions, such as European Monetary Fund.