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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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Related research

Keywords: Moral Hazard; Financial Crisis; International Financial Architecture; Global Games;

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References

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  1. 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.
  2. Silvia Marchesi, 2001. "Adoption of an IMF Programme and Debt Rescheduling. An Empirical Analysis," Development Working Papers 152, Centro Studi Luca d\'Agliano, University of Milano.
  3. Jean-Charles Rochet & Xavier Vives, 2002. "Coordination failures and the lender of last resort: was Bagehot right after all?," LSE Research Online Documents on Economics 24928, London School of Economics and Political Science, LSE Library.
  4. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
  5. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2003. "Coordination and Policy Traps," NBER Working Papers 9767, National Bureau of Economic Research, Inc.
  6. Olivier Jeanne, 2001. "The International Lender of Last Resort: How Large is Large Enought?," IMF Working Papers 01/76, International Monetary Fund.
  7. Tito Cordella & Eduardo Levy Yeyati, 2004. "Country Insurance," Econometric Society 2004 North American Summer Meetings 290, Econometric Society.
  8. Olivier Jeanne & Jeromin Zettelmeyer, 2005. "The Mussa Theorem (and Other Results on IMF-Induced Moral Hazard)," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 5.
  9. 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.
  10. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Department of Economics, Working Paper Series qt4cj974r4, Department of Economics, UC Santa Cruz.
  11. 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.
  12. 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.
  13. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows: Do IMF-Supported Programs Work as Commitment Devices?," IMF Working Papers 03/100, International Monetary Fund.
  14. 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.
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