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Rescue Packages and Output Losses Following Crises

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  • Michael P. Dooley
  • Sujata Verma

Abstract

This paper examines the role of the third party (the IMF) in resolving sovereign default on external debt. We first show that the effects of third party intervention in debt negotiations are quite sensitive to the assumed enforcement mechanism for sovereign debt. The model is then adapted to an insurance crisis. The main result is that the unanticipated component of third party intervention can either intensify or mitigate the dead weight loss following default.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8315.

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Date of creation: Jun 2001
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Publication status: published as Rescue Packages and Output Losses Following Crises , Michael P. Dooley, Sujata Verma. in Managing Currency Crises in Emerging Markets , Dooley and Frankel. 2003
Handle: RePEc:nbr:nberwo:8315

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  1. Honohan, Patrick & Klingebiel, Daniela, 2000. "Controlling the fiscal costs of banking crises," Policy Research Working Paper Series 2441, The World Bank.
  2. Anne Krueger & Aaron Tornell, 1999. "The Role of Bank Restructuring in Recovering from Crises: Mexico 1995-98," NBER Working Papers 7042, National Bureau of Economic Research, Inc.
  3. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 00/114, International Monetary Fund.
  4. Timothy D. Lane & Marianne Schulze-Gattas & T. M. Tsikata & Steven Phillips & Atish R. Ghosh & A. Javier Hamann, 1999. "IMF-Supported Programs in Indonesia, Korea and Thailand," IMF Occasional Papers 178, International Monetary Fund.
  5. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 51-82, 04.
  6. Dollar, David & Hallward-Driemeier, Mary, 2000. "Crisis, Adjustment, and Reform in Thailand's Industrial Firms," World Bank Research Observer, World Bank Group, vol. 15(1), pages 1-22, February.
  7. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
  8. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
  9. Ofek, Eli, 1993. "Capital structure and firm response to poor performance: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 34(1), pages 3-30, August.
  10. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, World Bank Group, vol. 15(1), pages 23-46, February.
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Cited by:
  1. Andrew Powell y Leandro Arozamena, 2003. "Liquidity Protection versus Moral Hazard: The Role of the IMF," Business School Working Papers ocho, Universidad Torcuato Di Tella.
  2. Claessens,Constantijn A. & Klingebiel, Daniela & Laeven, Luc, 2004. "Resolving systemic financial crisis : policies and institutions," Policy Research Working Paper Series 3377, The World Bank.
  3. Eduardo Borensztein & Olivier Jeanne & Paolo Mauro & Jeromin Zettelmeyer & Marcos Chamon, 2005. "Sovereign Debt Structure for Crisis Prevention," IMF Occasional Papers 237, International Monetary Fund.
  4. 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.
  5. Arteta, Carlos & Hale, Galina, 2008. "Sovereign debt crises and credit to the private sector," Journal of International Economics, Elsevier, vol. 74(1), pages 53-69, January.
  6. David Fernando López Angarita, 2006. "Nivel de reservas internacionales y riesgo cambiario en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 8(15), pages 117-159, July-Dece.
  7. Prasanna Gai & Simon Hayes & Hyun Song Shin, 2001. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," LSE Research Online Documents on Economics 25066, London School of Economics and Political Science, LSE Library.
  8. Suheyla Ozyildirim & Bulent Yaman, 2005. "Optimal versus adequate level of international reserves: evidence for Turkey," Applied Economics, Taylor & Francis Journals, vol. 37(13), pages 1557-1569.
  9. David Fernando LOPEZ ANGARITA, 2006. "Nivel óptimo de Reservas Internacionales y crisis cambiaria en Colombia," ARCHIVOS DE ECONOMÍA 003273, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  10. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Working Papers 07-10, Bank of Canada.
  11. Sergio Masciantonio, 2005. "The Role of Preference Structure and Moral Hazard in a Multiple Equilibria. Model of Financial Crises," Rivista di Politica Economica, SIPI Spa, vol. 95(6), pages 135-165, November-.
  12. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.

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