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The IMF in a World of Private Capital Markets

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  • Eichengreen, Barry
  • Kletzer, Kenneth
  • Mody, Ashoka

Abstract

The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt84s7r0jf.

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Date of creation: 21 Feb 2005
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Handle: RePEc:cdl:ucscec:qt84s7r0jf

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Citations

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Cited by:
  1. Hefeker, Carsten, 2006. "Vermeidung und Bewältigung von Verschuldungskrisen: Die Rolle privater und öffentlicher Institutionen," HWWA Discussion Papers, Hamburg Institute of International Economics (HWWA) 340, Hamburg Institute of International Economics (HWWA).
  2. Hallak, Issam, 2009. "Renegotiation and the pricing structure of sovereign bank loans: Empirical evidence," Journal of Financial Stability, Elsevier, Elsevier, vol. 5(1), pages 89-103, January.
  3. Galina Hale, 2003. "Bonds or Loans? The Effect of Macroeconomic Fundamentals," Yale School of Management Working Papers, Yale School of Management ysm343, Yale School of Management, revised 01 Apr 2007.
  4. Aitor Erce, 2012. "Does the IMF's official support affect sovereign bonds maturities?," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 128, Federal Reserve Bank of Dallas.
  5. Aitor Erce, 2012. "Does the IMF´s official support affect sovereign bond maturities?," Banco de Espa�a Working Papers, Banco de Espa�a 1231, Banco de Espa�a.
  6. Evrensel, Ayse & Kutan, Ali M., 2008. "How do IMF announcements affect financial markets in crises?: Evidence from forward exchange markets," Journal of Financial Stability, Elsevier, Elsevier, vol. 4(2), pages 121-134, June.
  7. Carlos de Resende, 2007. "IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect," Working Papers, Bank of Canada 07-22, Bank of Canada.
  8. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266 National Bureau of Economic Research, Inc.
  9. Zwart, Sanne, 2007. "The mixed blessing of IMF intervention: Signalling versus liquidity support," Journal of Financial Stability, Elsevier, Elsevier, vol. 3(2), pages 149-174, July.
  10. Jorra, Markus, 2012. "The effect of IMF lending on the probability of sovereign debt crises," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(4), pages 709-725.
  11. World Bank, 2007. "Global Development Finance 2007 : The Globalization of Corporate Finance in Developing Countries, Volume 1. Review, Analysis, and Outlook," World Bank Publications, The World Bank, The World Bank, number 8126, February.
  12. Uma Ramakrishnan & Juan Zalduendo, 2006. "The Role of IMF Support in Crisis Prevention," IMF Working Papers, International Monetary Fund 06/75, International Monetary Fund.
  13. 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, Elsevier, vol. 36(1), pages 164-182.
  14. John Cady & Anthony J. Pellechio, 2006. "Sovereign Borrowing Cost and the IMF's Data Standards Initiatives," IMF Working Papers, International Monetary Fund 06/78, International Monetary Fund.
  15. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers, International Monetary Fund 06/186, International Monetary Fund.
  16. 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, Elsevier, vol. 18(2), pages 147-160, April.

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