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IMF Bailouts and Moral Hazard

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Author Info
Jong-Wha Lee (Korea University)
Kwanho Shin (Korea University)

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Abstract

This paper empirically investigates the extent of investor moral hazard associated with IMF bailouts by analyzing the responses of sovereign bond spreads to the changes in the perceived probability of IMF bailouts of countries undergoing financial crisis. We do not find strong evidence that the extent of investor moral hazard changed after the non-bailout of Russia in August 1998 that signaled a modification to IMF intervention policy. In contrast, we find evidence that investor moral hazard is intensified for those countries that have stronger political connections to the IMF and that are thereby more likely to be bailed out by the IMF. This pattern prevailed even after the Russian crisis.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0501005.

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Length: 36 pages
Date of creation: 28 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0501005

Note: Type of Document - pdf; pages: 36
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Web page: http://129.3.20.41

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Related research
Keywords: IMF moral hazard sovereign bond spreads international financial architecture

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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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.:
  1. Andrew G Haldane & J"rg Scheibe, . "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England. [Downloadable!]
  2. Timothy D. Lane & Steven Phillips, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
  3. Yung Chul Park & Yunjong Wang, 2002. "What Kind of International Financial Architecture for an Integrated World Economy?," Asian Economic Papers, MIT Press, vol. 1(1), pages 91-128. [Downloadable!] (restricted)
  4. Prasanna Gai & Ashley Taylor, . "International financial rescues and debtor-country moral hazard," Bank of England working papers 217, Bank of England. [Downloadable!]
    Other versions:
  5. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  6. Bird, Graham & Hussain, Mumtaz & Joyce, Joseph P., 2004. "Many happy returns? Recidivism and the IMF," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 231-251, March. [Downloadable!] (restricted)
  7. Isabel Schnabel & Giovanni Dell'Ariccia & Jeromin Zettelmeyer, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund. [Downloadable!]
  8. Ashoka Mody & Diego Saravia, 2005. "Catalyzing Private Capital Flows: Do IMF Programs Work as Commitment Devices?," Documentos de Trabajo 280, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  9. Barry Eichengreen & Ashoka Mody, 2004. "Do Collective Action Clauses Raise Borrowing Costs?," Economic Journal, Royal Economic Society, vol. 114(495), pages 247-264, 04. [Downloadable!] (restricted)
  10. Robert J. Barro & Jong-Wha Lee, 2002. "IMF Programs: Who is Chosen and What Are the Effects?," NBER Working Papers 8951, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Axel Dreher, 2004. "Does the IMF cause moral hazard? A critical review of the evidence," International Finance 0402003, EconWPA, revised 29 Mar 2004. [Downloadable!]
  12. 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. [Downloadable!] (restricted)
  13. Olivier Jeanne & Jeromin Zettelmeyer, 2001. "International bailouts, moral hazard and conditionality," Economic Policy, CEPR, CES, MSH, vol. 16(33), pages 407-432, October. [Downloadable!] (restricted)
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Cited by:
(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. Oscar Bernal & Kim Oosterlinck & Ariane Szafarz, 2008. "Observing bailout expectations during a total eclipse of the sun," Working Papers CEB 08-015.RS, Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB). [Downloadable!]
  2. Heppke-Falk, Kirsten H. & Wolff, Guntram B., 2007. "Moral hazard and bail-out in fiscal federations: evidence for the German Länder," Discussion Paper Series 1: Economic Studies 2007,07, Deutsche Bundesbank, Research Centre. [Downloadable!]
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