International Financial Contagion and the Fund â€”A Theoretical Framework
AbstractIn this paper we provide a model of contagion in which countries are linked through the international capital market which allows borrowing and lending for consumption smoothing. Borrowing from the International Monetary Fund also provides a mechanism for countries to smooth consumption intertemporally. Facing a large shock that makes it impossible for a country simultaneously to achieve a desired minimum level of consumption and to service its foreign debt, the country will default. This will put some upward pressure on world interest rates, which raises the debt service costs of other indebted countries and can generate further rounds of defaults. In this environment the Fund has an important systemic function in lending to members to limit the extent of contagion and default. The Fund can be seen as internalizing the externality generated by the contagion that spreads through the channel of the world capital market that links all countries. Copyright Springer Science + Business Media, LLC 2006
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 17 (2006)
Issue (Month): 4 (December)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100323
International financial contagion; conditionality; IMF;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Haizhou Huang & Chenggang Xu, 2000.
"Financial Institutions, Financial Contagion, and Financial Crises,"
IMF Working Papers
00/92, International Monetary Fund.
- Haizhou Huang & Chenggang Xu, 2000. "Financial Institutions, Financial Contagion, and Financial Crises," William Davidson Institute Working Papers Series 316, William Davidson Institute at the University of Michigan.
- Haizhou Huang & Chenggang Xu, 1999. "Financial Institutions, Financial Contagion, and Financial Crises," CID Working Papers 21, Center for International Development at Harvard University.
- Haizhou Huang, 2000. "Financial Institutions, Financial Contagion, and Financial Crises," Econometric Society World Congress 2000 Contributed Papers 1595, Econometric Society.
- Huang, H. & Xu, C., 2000. "Financial Institutions, Financial Contagion, and Financial Crises," Papers 21, Chicago - Graduate School of Business.
- Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March.
- Peter B. Clark & Haizhou Huang, 2001. "International Financial Contagion and the Fund: A Theoretical Framework," IMF Working Papers 01/137, International Monetary Fund.
- Kenneth M. Kletzer & Brian D. Wright, 2000.
"Sovereign Debt as Intertemporal Barter,"
- Kenneth M. Kletzer and Brian D. Wright., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research (CIDER) Working Papers C98-100, University of California at Berkeley.
- Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research, Working Paper Series qt4qg3c42v, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Manmohan S. Kumar & Paul R. Masson & Marcus Miller, 2000. "Global Financial Crises - Institutions and Incentives," IMF Working Papers 00/105, International Monetary Fund.
- Allen, Franklin & Gale, Douglas, 1998.
98-33, C.V. Starr Center for Applied Economics, New York University.
- Inci, A. Can & Li, H.C. & McCarthy, Joseph, 2011. "Financial contagion: A local correlation analysis," Research in International Business and Finance, Elsevier, vol. 25(1), pages 11-25, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.