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Rescue Packages and Output Losses Following Crises

In: Managing Currency Crises in Emerging Markets

  • Michael P. Dooley
  • Sujata Verma

This paper examines the role of the third party (the IMF) in resolving sovereign default on external debt. We first show that the effects of third party intervention in debt negotiations are quite sensitive to the assumed enforcement mechanism for sovereign debt. The model is then adapted to an insurance crisis. The main result is that the unanticipated component of third party intervention can either intensify or mitigate the dead weight loss following default.

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This chapter was published in:
  • Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9650.
    Handle: RePEc:nbr:nberch:9650
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