Advanced Search
MyIDEAS: Login

A Theory of International Crisis Lending and IMF Conditionality

Contents:

Author Info

  • Jeromin Zettelmeyer
  • Jonathan David Ostry
  • Olivier Jeanne

Abstract

We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts-"ex ante" conditionality.

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=22371
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/236.

as in new window
Length: 33
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/236

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: International Monetary Fund; Crisis prevention; Fund role; Moral hazard; Spillovers; conditionality; crisis lending; ante conditionality; ex ante conditionality; contagion; crisis resolution; ex post conditionality; pre-crisis; financial crises; conditional lending; crisis countries; debt overhang; financial crisis; prudential regulation; ex ante ? conditionality; macroeconomic policies; crisis country; capital adequacy; banking crises; capital account liberalization; currency crisis; imf supported adjustment programs; adjustment programs; balance of payments crisis; international crisis; international financial crises; capital account crisis; international crisis lending; ante ? conditionality; crisis probability; payments crisis; debt structure;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Jonathan David Ostry & Jeromin Zettelmeyer, 2005. "Strengthening IMF Crisis Prevention," IMF Working Papers 05/206, International Monetary Fund.
  2. International Monetary Fund, 1998. "Do IMF-Supported Programs Work? a Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
  3. Wolfgang Mayer & Alex Mourmouras, 2004. "The Political Economy of Conditional and Unconditional Foreign Assistance," IMF Working Papers 04/38, International Monetary Fund.
  4. S. Nuri Erbas, 2003. "Imf Conditionality and Program Ownership," IMF Working Papers 03/98, International Monetary Fund.
  5. Polak, J.J., 1991. "The Changing Nature of IMF Conditionality," Princeton Studies in International Economics 184, International Economics Section, Departement of Economics Princeton University,.
  6. Miller, Marcus & Zhang, Lei, 2000. "Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill," Economic Journal, Royal Economic Society, vol. 110(460), pages 335-62, January.
  7. Olivier Jeanne & Jeromin Zettelmeyer, 2001. "International bailouts, moral hazard and conditionality," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 407-432, October.
  8. Peter B. Kenen, 2001. "International Financial Architecture: What's New? What's Missing?, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 335.
  9. Joseph P. Joyce, 2006. "Promises Made, Promises Broken: A Model Of Imf Program Implementation," Economics and Politics, Wiley Blackwell, vol. 18(3), pages 339-365, November.
  10. Jean-Charles Rochet & Xavier Vives, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," FMG Discussion Papers dp408, Financial Markets Group.
  11. Carlos de Resende, 2007. "IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect," Working Papers 07-22, Bank of Canada.
  12. Olivier Jeanne, 2001. "The International Lender of Last Resort," IMF Working Papers 01/76, International Monetary Fund.
  13. Jeanne, Olivier & Wyplosz, Charles, 2001. "The International Lender of Last Resort: How Large is Large Enough?," CEPR Discussion Papers 2842, C.E.P.R. Discussion Papers.
  14. Gale, Douglas & Vives, Xavier, 2002. "Dollarization, bailouts, and the stability of the banking system," HWWA Discussion Papers 185, Hamburg Institute of International Economics (HWWA).
  15. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
  16. Stephen Morris & Hyun Song Shin, 2003. "Catalytic Finance: When Does It Work?," Cowles Foundation Discussion Papers 1400, Cowles Foundation for Research in Economics, Yale University.
  17. Jun Il Kim, 2006. "IMF-Supported Programs and Crisis Prevention," IMF Working Papers 06/156, International Monetary Fund.
  18. Andy Haldane & Mark Kruger, 2001. "The Resolution of International Financial Crises: Private Finance and Public Funds," Working Papers 01-20, Bank of Canada.
  19. Peter B. Clark & Haizhou Huang, 2001. "International Financial Contagion and the Fund," IMF Working Papers 01/137, International Monetary Fund.
  20. Jacques J. Polak, 1991. "The Changing Nature of IMF Conditionality," OECD Development Centre Working Papers 41, OECD Publishing.
  21. Weithoner, Thomas, 2006. "How can IMF policy eliminate country moral hazard and account for externalities?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1257-1276, December.
  22. Wolfgang Mayer & Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 05/121, International Monetary Fund.
  23. Charles W. Calomiris, 1998. "The IMF's Imprudent Role As Lender of Last Resort," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), pages 275-294, Winter.
  24. Walter B. Wriston, 1998. "Dumb Networks and Smart Capital," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), Winter.
  25. 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.
  26. 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.
  27. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows," IMF Working Papers 03/100, International Monetary Fund.
  28. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March.
  29. Alex Mourmouras & Peter Rangazas, 2004. "Conditional Lending Under Altruism," IMF Working Papers 04/100, International Monetary Fund.
  30. Alex Mourmouras & Wolfgang Mayer, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 02/73, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eduardo Fernández-Arias & Andrew Powell & Alessandro Rebucci, 2009. "The Multilateral Response to the Global Crisis: Rationale, Modalities, and Feasibility," IDB Publications 6770, Inter-American Development Bank.
  2. Fratzscher, Marcel & Reynaud, Julien, 2011. "IMF surveillance and financial markets--A political economy analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 405-422, September.
  3. Daniel Kapp, 2012. "The optimal size of the European Stability Mechanism: A cost-benefit analysis," DNB Working Papers 349, Netherlands Central Bank, Research Department.

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:08/236. 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.