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A (New) Country Insurance Facility

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  • Tito Cordella y Eduardo Levy Yeyati

Abstract

To cope with the self-fulfilling liquidity runs that triggered many recent financial crises, we propose the creation of a country insurance facility. The facility, which we envisage as complementary to the existing multilateral lending facilities, would provide eligible countries with automatic access to a credit line at a predetermined interest rate. Eligibility criteria should be easily verifiable, focus on debt sustainability, and take into account the currency and maturity composition of the debt. Other critical design issues considered here include the size of the facility, its duration and charges, and the exit costs for a country that loses eligibility.

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-022005.pdf
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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number newcountryins.

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Length: 34 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:udt:wpbsdt:newcountryins

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  1. Haizhou Huang & C. A. E. Goodhart, 1999. "A Model of the Lender of Last Resort," IMF Working Papers 99/39, International Monetary Fund.
  2. Romain Ranciere & Aaron Tornell & Frank Westermann, 2004. "Crises and Growth: A Re-Evaluation," CESifo Working Paper Series 1160, CESifo Group Munich.
  3. Eduardo Borensztein & Paolo Mauro, 2004. "The case for GDP-indexed bonds," Economic Policy, CEPR & CES & MSH, vol. 19(38), pages 165-216, 04.
  4. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  5. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
  6. Caballero, Ricardo J. & Panageas, Stavros, 2008. "Hedging sudden stops and precautionary contractions," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 28-57, February.
  7. Cordella, Tito & Yeyati, Eduardo Levy, 2003. "Bank bailouts: moral hazard vs. value effect," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 300-330, October.
  8. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," Working Paper Series rwp01-008, Harvard University, John F. Kennedy School of Government.
  9. Morris Goldstein, 2001. "IMF Structural Conditionality: How Much is Too Much?," Working Paper Series WP01-4, Peterson Institute for International Economics.
  10. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
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Citations

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Cited by:
  1. Barry Eichengreen, 2006. "Insurance Underwriter or Financial Development Fund: What Role for Reserve Pooling in Latin America?," NBER Working Papers 12451, National Bureau of Economic Research, Inc.
  2. Kapp, Daniel & Vega, Marco, 2012. "Real output costs of financial crises: a loss distribution approach," MPRA Paper 35706, University Library of Munich, Germany.
  3. Presbitero, Andrea F. & Zazzaro, Alberto, 2012. "IMF Lending in Times of Crisis: Political Influences and Crisis Prevention," World Development, Elsevier, vol. 40(10), pages 1944-1969.
  4. Jonathan David Ostry & Jeromin Zettelmeyer, 2005. "Strengthening IMF Crisis Prevention," IMF Working Papers 05/206, International Monetary Fund.
  5. World Bank, 2008. "Country Insurance : Reducing Systemic Vulnerabilities in Latin America and the Caribbean," World Bank Other Operational Studies 8010, The World Bank.
  6. Kapp, Daniel & Vega, Marco, 2012. "The Real Output Costs of Financial Crisis: A Loss Distribution Approach," Working Papers 2012-013, Banco Central de Reserva del Perú.
  7. Antonio Francisco A. Silva Jr, 2011. "The Self-insurance Role of International Reserves and the 2008-2010 Crisis," Working Papers Series 256, Central Bank of Brazil, Research Department.
  8. Eduardo Levy Yeyati, 2008. "Liquidity Insurance in a Financially Dollarized Economy," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 185-218 National Bureau of Economic Research, Inc.
  9. Irwin, Gregor & Penalver, Adrian & Salmon, Chris & Taylor, Ashley, 2008. "Dealing with country diversity: challenges for the IMF credit union model," Bank of England working papers 349, Bank of England.
  10. Ran Bi & Prakash Kannan & Suman Sambha Basu, 2010. "Regional Reserve Pooling Arrangements," 2010 Meeting Papers 675, Society for Economic Dynamics.
  11. Didier, Tatiana & Mauro, Paolo & Schmukler, Sergio L., 2008. "Vanishing financial contagion?," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 775-791.
  12. Daniel Kapp, 2012. "The optimal size of the European Stability Mechanism: A cost-benefit analysis," DNB Working Papers 349, Netherlands Central Bank, Research Department.
  13. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266 National Bureau of Economic Research, Inc.
  14. Alain Ize & Miguel Kiguel & Eduardo Levy Yeyati, 2005. "Managing Systemic Liquidity Risk in Financially Dollarized Economy," Business School Working Papers managsystrisk, Universidad Torcuato Di Tella.

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