ABSTRACT
Studies of literature also found that capital account liberalization and financial instability, as well as the financial crises and infection, are closely related. But during the current entry to the postcrisis era, the world economy recovers slowly; the impact of debt problems of some European countries is increasing; the monetary policy of the United States is still loose; and international hot money is flooding into emerging economies. So, the external environment for the economic and financial development of most countries is full of uncertainties, which increases the possibility of a new round of financial crises. With the trend of development of economic and financial globalization, as new financial crises break out frequently, it is reasonable to avoid the rapid spread and movement of hot money flows, which not only have led to greater economic losses along the flow path provided by regional capital account liberalizations but also have and will continue to seriously disrupt the global economic order again and again. In other words, movements of hot money, accompanied by regional capital account liberalizations, have and will continue to create breeding grounds for the future rounds of global financial crises and infections. Therefore, in this section, we introduce a theoretical framework of optimization that can effectively address the phenomenon of contagion of financial crises under the assumption of capital account liberalization and other economic issues.
