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Measuring Real Economic Effects of Bailouts: Historical Perspectives on How Countries in Financial Distress Have Fared With and Without Bailouts

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Michael D. Bordo
Anna J. Schwartz

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Abstract

In this paper we first trace the changing nature of banking, currency and debt crises from the last century to the present. Each type of crisis has transmogrified in the presence of official intervention and the creation of a safety net. A similar pattern is observed for international rescue loans. We then present evidence suggesting that the incidence has increased and the severity of financial crises has changed little in emerging markets from the pre-1914 era to the present. Finally we assess the impact of IMF loans on the macro performance of the recipients. A simple with-without comparison of countries receiving IMF assistance during crises in the period 1973-98 with countries in the same region not receiving assistance suggests that the real performance of the former group was possibly worse than the latter. Similar results obtain adjusting for self-selection bias and counterfactual policies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7701.

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Date of creation: May 2000
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Handle: RePEc:nbr:nberwo:7701

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F3 - International Economics - - International Finance
G2 - Financial Economics - - Financial Institutions and Services

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(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. Kibritcioglu, Aykut, 2002. "Excessive Risk-Taking, Banking Sector Fragility, and Banking Crises," Working Papers 02-0114, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
  2. Michael Hutchison & Ilan Noy, 2003. "Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations," Pacific Basin Working Paper Series 03-02, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  3. James L. Butkiewicz & Halit Yanikkaya, 2003. "An Assessment of the Effectiveness of International Financial Intervention," Working Papers 03-05, University of Delaware, Department of Economics. [Downloadable!]
  4. Ilan Noy, 2004. "Do IMF Bailouts Result in Moral Hazard? An Events-Study Approach," Working Papers 200402, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  5. Mundaca, Gabriela, 2003. "Optimal bailout during currency and financial crises: A sequential game analysis," Memorandum 27/2002, Oslo University, Department of Economics. [Downloadable!]
  6. Mundaca, B. Gabriela, 2002. "Moral Hazard Effects of Bailing out under Asymmetric Information," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. Michael M. Hutchison, 2004. "Selection Bias and the Output Costs of IMF Programs," EPRU Working Paper Series 04-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  8. Morris Goldstein, 2001. "IMF Structural Conditionality: How Much is Too Much?," Peterson Institute Working Paper Series WP01-4, Peterson Institute for International Economics. [Downloadable!]
  9. Michael Hutchison, 2001. "A cure worse than the disease? currency crises and the output costs of IMF-supported stabilization programs," Pacific Basin Working Paper Series 01-02, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  10. Jeffrey A. Frankel & Nouriel Roubini & Mervyn King & Robert Rubin & George Soros, 2003. "Industrial Country Policies," NBER Chapters, in: Economic and Financial Crises in Emerging Market Economies, pages 155-296 National Bureau of Economic Research, Inc. [Downloadable!]
  11. Frankel, Jeffrey & Roubini, Nouriel, 2002. "The Role of Industrial Country Policies in Emerging Market Crises," Working Paper Series rwp02-002, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
  12. Mundaca, B. Gabriela, 2007. "Monitoring, liquidity provision and financial crisis," Memorandum 04/2007, Oslo University, Department of Economics, revised 01 Mar 2009. [Downloadable!]
  13. Ashoka Mody & Nienke Oomes & Michael D. Bordo, 2004. "Keeping Capital Flowing: The Role of the IMF," IMF Working Papers 04/197, International Monetary Fund. [Downloadable!]
    Other versions:
  14. Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," NBER Working Papers 9219, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Paulo Augusto P. de Britto, 2004. "Sovereign Debt: Default, Market Sanction, and Bailout," Econometric Society 2004 Latin American Meetings 237, Econometric Society. [Downloadable!]
  16. Michael Bordo & Anna J. Schwartz, 2001. "From the Exchange Stabilization Fund to the International Monetary Fund," NBER Working Papers 8100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Eric Berr & François Combarnous & Eric Rougier, 2005. "Too much consensus could be harmful : measuring the degree of implementation of the Washington consensus and its impact on economic growth," Documents de travail 116, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV. [Downloadable!]
  18. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers 03-14, Bank of Canada. [Downloadable!]
  19. Dreher, Axel, 2005. "IMF and Economic Growth: The Effects of Programs, Loans, and Compliance with Conditionality," Proceedings of the German Development Economics Conference, Kiel 2005 11, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
    Other versions:
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