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Private Sector Involvement and International Financial Crises: An Analytical Perspective

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  • Chui, Michael

    (Hong Kong Monetary Authority)

  • Gai, Prasanna

    (Australian National University and Bank of England)

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    Abstract

    Offering an analytical perspective on the design and reform of the international financial architecture, this book stresses the important role played by creditor co-ordination problems in the origin and management of crises by relating the insights of the new literature on global games to earlier work on currency crises, bank runs, and sovereign debt default. It examines the design of sovereign bankruptcy procedures, the role of the IMF in influencing creditors and debtor countries, and the currency composition of sovereign debt, and draws on recent research and policy work. The book's first part provides a critical synthesis of the literature underpinning the architecture debate. It reviews the traditional distinction between "fundamentals-based" and "sunspot-based" crises before reconciling the two using global game methods. The role of co-ordination problems in sparking costly liquidation and influencing the debtor's incentives to repay is then examined in depth and shown to lie at the heart of crisis management policy. The empirical literature on leading indicators of crisis is also critically examined and related to the architecture debate. In its second part the book examines key issues in crisis management. Suggesting that optimal reforms must set the inefficiencies of crisis against the inefficiencies of debtor moral hazard, the authors consider the relative merits of statutory and contractual solutions to sovereign debt workouts. They go on to discuss the role of the IMF in influencing private lending and debtor moral hazard, theoretically and empirically. They argue that there is no simple relationship between ex post crisis management and ex ante moral hazard, implying that the handling of financial crises is a delicate affair warranting a cautious approach by would-be architects. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0199267758/toc.html

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    Bibliographic Info

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    This book is provided by Oxford University Press in its series OUP Catalogue with number 9780199267750 and published in 2005.

    ISBN: 9780199267750
    Order: http://ukcatalogue.oup.com/product/9780199267750.do
    Handle: RePEc:oxp:obooks:9780199267750

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    Web page: http://www.oup.com/

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    Cited by:
    1. Licchetta, Mirko, 2009. "Common determinants of currency crises: role of external balance sheet variables," Bank of England working papers 366, Bank of England.
    2. Alessi, Lucia & Detken, Carsten, 2011. "Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity," European Journal of Political Economy, Elsevier, vol. 27(3), pages 520-533, September.
    3. Daniela Bragoli & Piero Ganugi & Giancarlo Ianulardo, 2013. "Gini’s transvariation analysis: an application on financial crises in developing countries," Empirica, Springer, vol. 40(1), pages 153-174, February.
    4. Graham Bird & Alex Mandilaras, 2010. "Revisiting Mrs. Machlup's wardrobe: the accumulation of international reserves, 1992-2001," Applied Economics Letters, Taylor & Francis Journals, vol. 17(5), pages 467-471.

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