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Country Insurance

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Author Info
Eduardo Levy Yeyati
Tito Cordella

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Abstract

To understand the consequences of the presence of international safety nets on governments' incentives to undertake reforms, we model IFIs´ interventions as country insurance policies. We find that country insurance (especially when made contingent on negative external shocks) is more likely to foster reforms in crisis-prone volatile economies. The consequences of country insurance on reform incentives, however, hinge on the nature of the reforms being considered: "buffering" reforms aimed at mitigating the cost of crises will be partially substituted for by insurance, and may be ultimately discouraged; by contrast, "enhancing" reforms that pay off more generously in the absence of a crisis will instead be promoted

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Publisher Info
Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 136.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:136

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Related research
Keywords: Bailouts; Moral Hazard; Insurance Effect; International Lender of Last Resort; Financial Crises;

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

References listed on IDEAS
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.:

  1. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Michael Mussa, 1999. "Reforming the International Financial Architecture: Limiting Moral Hazard and Containing Real Hazard," RBA Annual Conference Volume, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia. [Downloadable!]
  3. Timothy D. Lane & Steven Phillips, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
  4. Cordella, Tito & Yeyati, Eduardo Levy, 2003. "Bank bailouts: moral hazard vs. value effect," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 300-330, October. [Downloadable!] (restricted)
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  5. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "The Mexican Peso Crisis: Sudden Death or Death Foretold?," NBER Working Papers 5563, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Isabel Schnabel & Giovanni Dell'Ariccia & Jeromin Zettelmeyer, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund. [Downloadable!]
  8. Jeanne, Olivier & Zettelmeyer, Jeromin, 2001. "International Bailouts, Moral Hazard, and Conditionality," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  9. Eduardo Borensztein & Paolo Mauro, 2004. "The case for GDP-indexed bonds," Economic Policy, CEPR, CES, MSH, vol. 19(38), pages 165-216, 04. [Downloadable!] (restricted)
  10. Jonathan Kearns & Ricardo J. Caballero & Kevin Cowan, 2004. "Fear of Sudden Stops: lessons from Australia and Chile," Econometric Society 2004 Latin American Meetings 185, Econometric Society. [Downloadable!]
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  11. Stephen Morris & Hyun Song Shin, 2004. "Catalytic Finance: When Does It Work?," Yale School of Management Working Papers ysm339, Yale School of Management. [Downloadable!]
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  12. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall. [Downloadable!] (restricted)
  13. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Alejandro Izquierdo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability in Argentina," The World Economy, Blackwell Publishing, vol. 25(7), pages 903-923, 07. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
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  16. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  17. Roberto Chang & Andrés Velasco, 2001. "A Model Of Financial Crises In Emerging Markets," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 489-517, May. [Downloadable!] (restricted)
  18. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. De la Torre, Augusto & Levy Yeyati, Eduardo & Schmukler, Sergio L., 2003. "Living and dying with hard pegs : the rise and fall of Argentina's currency board," Policy Research Working Paper Series 2980, The World Bank. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," NBER Working Papers 12235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Eduardo Levy Yeyati, 2006. "Liquidity Insurance in a Financially Dollarized Economy," Business School Working Papers liquid, Universidad Torcuato Di Tella. [Downloadable!]
    Other versions:
  3. Guido Sandleris & Filippo Taddei, 2007. "Indexed Sovereign Debt: a Survey and a Framework of Analysis," Carlo Alberto Notebooks 66, Collegio Carlo Alberto. [Downloadable!]
  4. Kenneth Kletzer, 2004. "Sovereign Debt, Volatility and Insurance," Santa Cruz Center for International Economics, Working Paper Series 1043, Center for International Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  5. Miguel A. Kiguel & Alain Ize & Eduardo Levy Yeyati, 2005. "Managing Systemic Liquidity Risk in Financially Dollarized Economies," IMF Working Papers 05/188, International Monetary Fund. [Downloadable!]
  6. 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. [Downloadable!]
    Other versions:
  7. Eduardo Levy Yeyati, 2004. "Recurrent Debt Problems and International Safety Nets," Business School Working Papers safetynets, Universidad Torcuato Di Tella. [Downloadable!]
  8. Barry Eichengreen, 2007. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," Open Economies Review, Springer, vol. 18(1), pages 27-52, February. [Downloadable!] (restricted)
    Other versions:
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