This paper reviews the theoretical arguments in favor and against MF and presents an empirical assessment of the risks that it may pose for inflation.

The financial health of banks and sovereigns is intertwined in a "sovereign-bank nexus" that may multiply and accelerate vulnerabilities in each sector, and lead to adverse feedback loops. Increasing resilience requires reducing the likelihood of severe stress in each sector, as well as lowering the potency of the nexus. However, designing effective reforms requires a clear understanding of the interaction between and the magnitude of the different channels that give rise to the nexus. This paper identifies these channels, assesses their empirical relevance, and discusses the policy implications of these findings

Financial globalization has increased dramatically over the past three decades, particularly for advanced economies, while emerging market and developing countries experienced more moderate increases. Divergences across countries stem from different capital control regimes, and factors such as institutional quality and domestic financial development. Although, in principle, financial globalization should enhance international risk sharing, reduce macroeconomic volatility, and foster economic growth, in practice its effects are less clear-cut. This paper envisages a gradual and orderly sequencing of external financial liberalization and complementary reforms in macroeconomic policy framework as essential components of a successful liberalization strategy.