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The Role of Preference Structure and Moral Hazard in a Multiple Equilibria. Model of Financial Crises

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  • Sergio Masciantonio

    (Università degli Studi "Roma Tre")

Abstract

This paper proposes an analysis of financial crises by a multiple equilibria model, based on the assumption of common knowledge. This model modifies and broadens the Corsetti, Guimaraes and Roubini (2003) model based on global games theory. In the first part we assert the implications for the International Monetary Fund (IMF) as an international lender of last resort, utilising existing literature based on multiple equilibria models. In the second part, we extend the analysis and highlight the interesting implications. The model predicts the IMF should not be too conservative in its decisions, while avoiding the excessive liquidity supports, which can lead to moral hazard distortions.

Suggested Citation

  • 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-.
    • Handle: RePEc:rpo:ripoec:v:95:y:2005:i:6:p:135-165
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    References listed on IDEAS

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    More about this item

    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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