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Moral Hazard and International Crisis Lending: A Test


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  • Giovanni Dell'Ariccia
  • Jeromin Zettelmeyer
  • Isabel Schnabel


We test for the existence of a moral hazard effect attributable to official crisis lending by analyzing the evolution of sovereign bond spreads in emerging markets before and after the Russian crisis. The nonbailout of Russia in August 1998 is interpreted as an event that decreased the perceived probability of future crisis lending to emerging markets. In the presence of moral hazard, such an event should raise not only the level of spreads, but also the sensitivity with which spreads reflect fundamentals as well as their cross-country dispersion. We find strong evidence for all three effects.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/181.

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Length: 55
Date of creation: 01 Oct 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/181

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Keywords: Moral hazard; Sovereign debt; bond; crisis lending; bond spreads; bonds; international crisis; international crisis lending; asian crisis; pre-crisis; bond spread; market bond; emerging market bond; financial crises; bond issues; high-yield bond; financial crisis; derivative; financial safety net; crisis probability; large-scale crisis lending; crisis countries; debt restructuring; eurobonds; brady bonds; financial markets; international finance; bond index; international interest rates; financial system; risk-free interest rate; government bond; post-crisis period; financial market; corporate bonds; crisis probabilities; financial sector; crisis resolution; contagion; currency crisis; crisis country; crisis prevention; partial derivative; sovereign bond; international financial architecture; international financial markets; bond issue; liquidity crises; public bonds; international capital; sovereign bonds; fiscal crisis; government bonds; bank runs; global ? bond index; international financial system; international capital markets; international financial statistics; international financial crises; global bond index; debt stock; financial ? safety net; corporate bond; post-crisis periods; global ? bond; private bonds; global bond; payments crisis; rating agencies;


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