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International Financial Rescues and Debtor-Country Moral Hazard

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  • Prasanna Gai
  • Ashley Taylor

Abstract

This paper examines whether recent international policy initiatives to facilitate financial rescues in emerging market countries have influenced debtors' incentives to access official sector resources. The paper highlights a country's systemic importance as a key characteristic that drives access to official sector finance. It estimates the effect of these financial rescue initiatives on IMF programme participation using a pooled probit model. The safety net permitting exceptional access is shown to have a greater marginal impact on official sector resource usage, the more systemically important the debtor country. The results can be interpreted as offering some support for the presence of debtor-country moral hazard. Copyright Blackwell Publishing Ltd. 2004

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 7 (2004)
Issue (Month): 3 (December)
Pages: 391-420

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Handle: RePEc:bla:intfin:v:7:y:2004:i:3:p:391-420

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References

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  1. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  2. Andy Haldane & Mark Kruger, 2001. "The Resolution of International Financial Crises: Private Finance and Public Funds," Working Papers 01-20, Bank of Canada.
  3. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  4. Robert J Barro & Jong-Wha Lee, 2003. "IMF Programs: Who Is Chosen and What Are the Effects?," Departmental Working Papers 2003-09, The Australian National University, Arndt-Corden Department of Economics.
  5. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
  6. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Centre de Recherche en Economie et Statistique.
  7. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  8. Chiappori, P.A. & Durand, F. & Geoffard, P.Y., 1998. "Moral Hazard and the Demand for Physician Services: First Lessons from a French Natural Experiment," DELTA Working Papers 98-05, DELTA (Ecole normale supérieure).
  9. Timothy Besley & Anne Case, 1994. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," NBER Working Papers 4956, National Bureau of Economic Research, Inc.
  10. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  11. Joyce, Joseph P., 1992. "The economic characteristics of IMF program countries," Economics Letters, Elsevier, vol. 38(2), pages 237-242, February.
  12. Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
  13. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
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Cited by:
  1. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
  2. Lee, Jong-Wha & Shin, Kwanho, 2008. "IMF bailouts and moral hazard," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 816-830, September.
  3. Gregor Irwin & David Vines, 2004. "The efficient resolution of capital account crises: how to avoid moral hazard," Bank of England working papers 233, Bank of England.
  4. Evrensel, Ayse Y. & Kim, Jong Sung, 2006. "Macroeconomic policies and participation in IMF programs," Economic Systems, Elsevier, vol. 30(3), pages 264-281, October.
  5. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Working Papers 07-10, Bank of Canada.
  6. Martin Brooke & Rhys R. Mendes & Alex Pienkowski & Eric Santor, 2013. "Sovereign Default and State-Contingent Debt," Discussion Papers 13-3, Bank of Canada.
  7. Axel Dreher, 2004. "Does the IMF cause moral hazard? A critical review of the evidence," International Finance 0402003, EconWPA, revised 29 Mar 2004.
  8. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.

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