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Dealing with country diversity: challenges for the IMF credit union model

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  • Irwin, Gregor

    ()
    (Bank of England)

  • Penalver, Adrian

    ()
    (Bank of England)

  • Salmon, Chris

    ()
    (Bank of England)

  • Taylor, Ashley

    (London School of Economics)

Abstract

We develop a model in which countries can protect themselves against shocks by subscribing to a credit union that shares the key features of the International Monetary Fund, or by self-insuring through accumulating reserves. We assess the impact of the increasing heterogeneity of the Fund's membership on the political equilibrium Fund size and hence its effectiveness as a credit union. We find the Fund's existing lending framework is well suited to a world in which its members have homogeneous interests, but as the membership has become more heterogeneous the Fund is increasingly unlikely to provide financing on a sufficient scale to meet the demands of higher-risk members, leading them to rely more heavily on self-insurance. We conclude that the framework governing the Fund's lending operations may no longer be appropriate.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 349.

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Length: 43 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:boe:boeewp:0349

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  1. Tito Cordella & Eduardo Levy Yeyati, 2005. "A (New) Country Insurance Facility," IMF Working Papers 05/23, International Monetary Fund.
  2. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "Institutional Rules for Federations," NBER Working Papers 8646, National Bureau of Economic Research, Inc.
  3. Shim, Ilhyock & Sharma, Sunil & Chami, Ralph, 2008. "A Model of the IMF as a Coinsurance Arrangement," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(14), pages 1-41.
  4. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, Elsevier, vol. 59(2), pages 219-237, February.
  5. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 64(3), pages 623-46, May.
  6. Jacques Cremer & Thomas R. Palfrey, 2000. "Federal Mandates by Popular Demand," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 905-927, October.
  7. Miguel Gouveia, 1997. "Majority rule and the public provision of a private good," Public Choice, Springer, Springer, vol. 93(3), pages 221-244, December.
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Cited by:
  1. Marcus Miller & Dania Thomas, 2007. "Sovereign Debt Restructuring: The Judge, the Vultures and Creditor Rights," The World Economy, Wiley Blackwell, vol. 30(10), pages 1491-1509, October.
  2. E. Kohlscheen & M. P. Taylor, 2008. "International liquidity swaps: is the Chiang Mai Initiative pooling reserves efficiently?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(4), pages 323-332.

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