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Abstract

We employ a theoretical model to interpret the liquidity and moral hazard effects of IMF support during a financial crisis. We then estimate the response of forward exchange markets to IMF-related announcements, using data on the 3-, 9-, and 12-month forward exchange rates. Our results indicate that the announcement of IMF negotiations is associated with a premium on the baht and the rupiah, where the premium is much larger on the latter. This result is largely consistent with the responses of stock and bond markets, especially when country-specific data are employed.

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File URL: http://www.sciencedirect.com/science/article/B7CRR-4S01WN2-1/1/e3b81c54fe4e9bac704d25eb5a14c796
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 4 (2008)
Issue (Month): 2 (June)
Pages: 121-134

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Handle: RePEc:eee:finsta:v:4:y:2008:i:2:p:121-134

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Web page: http://www.elsevier.com/locate/jfstabil

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References

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1. Ross McLeod, 2008. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 44(2), pages 183-208.
   
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   • Ross McLeod, 2000. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 36(2), pages 5-41.
   • Ross McLeod, 1997. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 33(1), pages 3-43.
   • Mudrajad Kuncoro & Tri Widodo & Ross McLeod, 2009. "Survey of recent developments," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 45(2), pages 151-176.
2. Sarno, Lucio & Taylor, Mark P., 1999. "Moral hazard, asset price bubbles, capital flows, and the East Asian crisis:: the first tests," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 637-657, August.
3. Evrensel, Ayse Y. & Kutan, Ali M., 2007. "IMF-related announcements and stock market returns: Evidence from financial and non-financial sectors in Indonesia, Korea, and Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 15(1), pages 80-104, January.
4. Evrensel, Ayse Y. & Kutan, Ali M., 2006. "Creditor moral hazard in stock markets: Empirical evidence from Indonesia and Korea," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 640-654, June.
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6. Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2005. "The IMF in a world of private capital markets," Working Paper Series 2005-12, Federal Reserve Bank of San Francisco.
   
   • Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2006. "The IMF in a world of private capital markets," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1335-1357, May.
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   • Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2005. "The IMF in a World of Private Capital Markets," Santa Cruz Department of Economics, Working Paper Series qt84s7r0jf, Department of Economics, UC Santa Cruz.
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   • Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2005. "The IMF in a World of Private Capital Markets," NBER Working Papers 11198, National Bureau of Economic Research, Inc.
7. Zwart, Sanne, 2007. "The mixed blessing of IMF intervention: Signalling versus liquidity support," Journal of Financial Stability, Elsevier, vol. 3(2), pages 149-174, July.
8. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The “Overborrowing Syndrome”," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
9. Evrensel, Ayse Y. & Kutan, Ali M., 2008. "Impact of IMF-related news on capital markets: Further evidence from bond spreads in Indonesia and Korea," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 147-160, April.
10. Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
11. Ali Kutan & Brasukra Sudjana, 2003. "Investor reaction to IMF actions in the indonesian financial crisis," Journal of Policy Reform, Taylor and Francis Journals, vol. 6(3), pages 181-190.
12. Stephen Grenville, 2000. "Monetary Policy and the Exchange Rate During the Crisis," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 36(2), pages 43-60.
13. Hayo, Bernd & Kutan, Ali M., 2005. "IMF-related news and emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1126-1142, November.
14. Giancarlo Corsetti & Bernardo Guimaraes & Nouriel Roubini, 2003. "International Lending of Last Resort and Moral Hazard: A Model of IMF's Catalytic Finance," NBER Working Papers 10125, National Bureau of Economic Research, Inc.
    
    • Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.

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Cited by:

1. Kutan, Ali M. & Muradoglu, Gulnur & Sudjana, Brasukra G., 2012. "IMF programs, financial and real sector performance, and the Asian crisis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 164-182.

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