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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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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. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund.
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  4. Chang, Roberto & Velasco, Andres, 2000. "Banks, debt maturity and financial crises," Journal of International Economics, Elsevier, vol. 51(1), pages 169-194, June.
  5. Fernando Broner & Guido Lorenzoni & Sergio Schmuckler, 2006. "Why Do Emerging Economies Borrow Short Term?," 2006 Meeting Papers 841, Society for Economic Dynamics.
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  7. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2006. "The IMF in a world of private capital markets," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1335-1357, May.
  8. Diego Saravia, 2010. "Vulnerability, Crisis and Debt Maturity: do IMF Interventions Shorten the Length of Borrowing?," Working Papers Central Bank of Chile 600, Central Bank of Chile.
  9. 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.
  10. 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.
  11. 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.
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  14. repec:tpr:qjecon:v:106:y:1991:i:3:p:709-37 is not listed on IDEAS
  15. 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.
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  18. 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.
  19. 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.
  20. 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.
  21. 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.
  22. Bussière, M. & Ristiniemi, A., 2012. "Credit Ratings and Debt Crises," Working papers 396, Banque de France.
  23. Jeanne, Olivier, 2000. "Debt Maturity and the Global Financial Architecture," CEPR Discussion Papers 2520, C.E.P.R. Discussion Papers.
  24. 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.
  25. Diego Saravia & Ashoka Mody, 2003. "Catalyzing Capital Flows: Do IMF-Supported Programs Work As Commitment Devices?," IMF Working Papers 03/100, International Monetary Fund.
  26. Carlos de Resende, 2007. "IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect," Staff Working Papers 07-22, Bank of Canada.
  27. 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.
  28. Enisse Kharroubi, 2004. "Liquidity, volatility and growth," DELTA Working Papers 2004-26, DELTA (Ecole normale supérieure).
  29. 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.
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