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Catalytic Finance: When Does It Work?

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  • Stephen Morris

    ()
    (Yale University, Cowles Foundation)

  • Hyun Song Shin

    ()
    (University of London, London School of Economics & Political Science (LSE), Department of Accounting and Finance)

Abstract

n a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post inefficiency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.

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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm339.

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Date of creation: 28 Jul 2004
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Handle: RePEc:ysm:somwrk:ysm339

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Web page: http://icf.som.yale.edu/
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Keywords: Moral Hazard; Financial Crisis; International Financial Architecture; Global Games;

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References

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  1. Stephen Morris & Hyun Song Shin, 2001. "Coordination risk and the price of debt," LSE Research Online Documents on Economics 25046, London School of Economics and Political Science, LSE Library.
  2. Olivier Jeanne & Charles Wyplosz, 2003. "The International Lender of Last Resort. How Large Is Large Enough?," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 89-124 National Bureau of Economic Research, Inc.
  3. Tito Cordella & Eduardo Levy Yeyati, 2005. "Country Insurance," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 6.
  4. Jeffrey A. Frankel & Nouriel Roubini, 2001. "The Role of Industrial Country Policies in Emerging Market Crises," NBER Working Papers 8634, National Bureau of Economic Research, Inc.
  5. Rochet, Jean Charles & Vives, Xavier, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," CEPR Discussion Papers 3233, C.E.P.R. Discussion Papers.
  6. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2004. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 87-113.
  7. Marchesi, Silvia, 1999. "Adoption of an IMF Programme and Debt Rescheduling. An Empirical Analysis," The Warwick Economics Research Paper Series (TWERPS) 542, University of Warwick, Department of Economics.
  8. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
  9. Curzio Giannini & Carlo Cottarelli, 2002. "Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending," IMF Working Papers 02/193, International Monetary Fund.
  10. Olivier Jeanne & Jeromin Zettelmeyer, 2004. "The Mussa Theorem," IMF Working Papers 04/192, International Monetary Fund.
  11. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt4cj974r4, Center for International Economics, UC Santa Cruz.
  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.
  13. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Coordination and Policy Traps," Levine's Bibliography 122247000000000294, UCLA Department of Economics.
  14. Itay Goldstein & Ady Pauzner, 2005. "Demand-Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, 06.
  15. Olivier Jeanne, 2001. "The International Lender of Last Resort," IMF Working Papers 01/76, International Monetary Fund.
  16. Kenneth Kletzer & Barry J. Eichengreen & Ashoka Mody, 2003. "Crisis Resolution," IMF Working Papers 03/196, International Monetary Fund.
  17. Ales Bulir & Marianne Schulze-Gattas & Atish R. Ghosh & Alex Mourmouras & A. Javier Hamann & Timothy D. Lane, 2002. "IMF-Supported Programs in Capital Account Crises," IMF Occasional Papers 210, International Monetary Fund.
  18. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows," IMF Working Papers 03/100, International Monetary Fund.
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