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Does the IMF´s official support affect sovereign bond maturities?

  • Aitor Erce

    ()

    (Banco de España)

This paper looks at whether the tendency of some governments to borrow short term is reinforced by financial support from the International Monetary Fund. I first present a model of sovereign debt issuance at various maturities featuring endogenous liquidity crises and maturity mismatches due to financial underdevelopment. I use the model to analyse the impact of IMF lending during debt crises on the sovereign’s optimal maturity structure. Within the model, although IMF assistance is able to catalyse private flows, this provides incentives for government to issue larger amounts of short-term debt, making the roll-over problem larger. I take the model to the data and find support for the hypothesis that IMF lending leads countries to increase their short-term borrowing. Additionally, I do not find any positive effect of IMF lending on countries’ ability to tap international capital markets. These results helps explain why a catalytic effect of IMF lending has proved empirically elusive

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/12/Fich/dt1231e.pdf
File Function: First version, September 2011
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1231.

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Length: 35 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:bde:wpaper:1231
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  1. Barry Eichengreen & Kenneth Kletzer & Ashoka Mody, 2005. "The IMF in a World of Private Capital Markets," NBER Working Papers 11198, National Bureau of Economic Research, Inc.
  2. Bannier, Christina E., 2005. "Big elephants in small ponds: Do large traders make financial markets more aggressive?," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1517-1531, November.
  3. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
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  5. Ales Bulir & Marianne Schulze-Gattas & Atish R. Ghosh & Alex Mourmouras & A. Javier Hamann & Timothy D. Lane, 2002. "IMF-Supported Programs in Capital Account Crises; Design and Experience," IMF Occasional Papers 210, International Monetary Fund.
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  7. Ricardo J. Caballero & Arvind Krishnamurthy, 2000. "Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment," NBER Working Papers 7792, National Bureau of Economic Research, Inc.
  8. Aitor Erce, 2008. "A structural model of sovereign debt issuance: assessing the role of financial factors," Banco de Espa�a Working Papers 0809, Banco de Espa�a.
  9. Axel Dreher & Roland Vaubel, 2004. "Do IMF and IBRD Cause Moral Hazard and Political Business Cycles? Evidence from Panel Data," Open Economies Review, Springer, vol. 15(1), pages 5-22, January.
  10. Chang, Roberto & Velasco, Andres, 2000. "Banks, debt maturity and financial crises," Journal of International Economics, Elsevier, vol. 51(1), pages 169-194, June.
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  12. Min, Hong-Ghi & Lee, Duk-Hee & Nam, Changi & Park, Myeong-Cheol & Nam, Sang-Ho, 2003. "Determinants of emerging-market bond spreads: Cross-country evidence," Global Finance Journal, Elsevier, vol. 14(3), pages 271-286, December.
  13. 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.
  14. Carmen Broto & Javier Díaz-Cassou & Aitor Erce-Domínguez, 2008. "Measuring and explaining the volatility of capital flows towards emerging countries," Banco de Espa�a Working Papers 0817, Banco de Espa�a.
  15. Carlos de Resende, 2007. "IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect," Working Papers 07-22, Bank of Canada.
  16. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
  17. Diamond, Douglas W, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 709-37, August.
  18. Javier Díaz-Cassou & Alicia García-Herrero & Luis Molina, 2006. "What kind of capital flows does the IMF catalyze and when?," Banco de Espa�a Working Papers 0617, Banco de Espa�a.
  19. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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  21. Giancarlo Corsetti & Bernardo Guimaraes & Nouriel Roubini, 2003. "International Lending of Last Resort and Moral Hazard: A Model of IMF's Catalytic Finance," NBER Working Papers 10125, National Bureau of Economic Research, Inc.
  22. Zwart, Sanne, 2007. "The mixed blessing of IMF intervention: Signalling versus liquidity support," Journal of Financial Stability, Elsevier, vol. 3(2), pages 149-174, July.
  23. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  24. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  25. Enisse Kharroubi, 2004. "Liquidity, volatility and growth," DELTA Working Papers 2004-26, DELTA (Ecole normale supérieure).
  26. Diego Saravia, 2013. "Vulnerability, Crisis and Debt Maturity: Do IMF Interventions Shorten the Length of Borrowing?," Working Papers Central Bank of Chile 697, Central Bank of Chile.
  27. Bussière, M. & Ristiniemi, A., 2012. "Credit Ratings and Debt Crises," Working papers 396, Banque de France.
  28. Wasseem Mina & Jorge Martinez-Vazquez, 2002. "IMF Lending, Maturity of International Debt and Moral Hazard," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0301, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  29. Hyun Shin, 2001. "Coordination Risk and the Price of Debt," Economics Series Working Papers 1999-W25, University of Oxford, Department of Economics.
  30. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
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