Advanced Search
MyIDEAS: Login to save this paper or follow this series

Toward a Lender of First Resort

Contents:

Author Info

  • Daniel Cohen
  • Richard Portes

Abstract

If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the "good" over the "bad" equilibrium. We propose a policy intervention to deal with this structural weakness in the mechanisms of international capital flows. This is based on a simple taxonomy that breaks down the origin of crises into three components: confidence (spreads and currency crisis), fundamentals (real growth rate), and economic policy (primary deficit). Theory then suggests a set of circumstances in which a lender of first resort would be desirable. The policy would seek to short-circuit confidence crises, partly by using IMF support to improve ex ante incentives. Theory also illuminates the potential role of collective action clauses in reducing the risk of self-fulfilling debt crises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18859
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/66.

as in new window
Length: 26
Date of creation: 01 Mar 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/66

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Sovereign debt; Interest rates; Markets; Financial systems; debt crises; debt crisis; debt dynamics; debt restructuring; bondholders; public debt; sovereign debt restructuring; currency crisis; external debt; international financial architecture; long-term debt; bonds; bond; moral hazard; currency crises; debt reduction; low debt; financial market; indebted countries; international capital; international lending; stock of debt; international financial statistics; current account; total external debt; debt contract; repayments; debt stock; debt renegotiations; sovereign bonds; international finance; liquidity crises; sovereign debtors; bond debt; bond contracts; debt moratorium; debt contracts; private creditors; central banks; evolution of debt; central bank; international standards; financial intermediaries; financial services; bondholder; debt service; amount of debt; emerging market bond; international debt; debt obligation; indebted country; debt problems; crises episodes; public external debt; financial markets; liquidity crisis; bond index; international financial system; debt overhang; financial policies; financial system;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:06/66. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.