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International financial rescues and debtor-country moral hazard

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  • Prasanna Gai
  • Ashley Taylor

Abstract

In this paper the question of whether recent international policy initiatives to facilitate financial rescues in emerging market countries have influenced debtors' incentives to access official sector resources is examined. A country's systemic importance is highlighted as a key characteristic that drives access to official sector finance. The effect of these policy initiatives on IMF programme participation is estimated using a pooled probit model. The safety net implied by policy changes to permit exceptional access is shown to have a greater marginal impact on the use of official sector resources, the more systemically important the debtor country is. The paper's results can be interpreted as offering some support for the presence of debtor-country moral hazard.

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File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP217.pdf
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Paper provided by Bank of England in its series Bank of England working papers with number 217.

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Date of creation: May 2004
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Handle: RePEc:boe:boeewp:217
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Find related papers by 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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  1. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  2. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
  3. Pierre André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series 738, CESifo Group Munich.
  4. Joyce, Joseph P., 1992. "The economic characteristics of IMF program countries," Economics Letters, Elsevier, vol. 38(2), pages 237-242, February.
  5. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages F672-94, November.
  6. Andy Haldane & Mark Kruger, 2001. "The Resolution of International Financial Crises: Private Finance and Public Funds," Working Papers 01-20, Bank of Canada.
  7. Chiappori, Pierre-Andre & Durand, Franck & Geoffard, Pierre-Yves, 1998. "Moral hazard and the demand for physician services: First lessons from a French natural experiment," European Economic Review, Elsevier, vol. 42(3-5), pages 499-511, May.
  8. Reinhart, Carmen & Kaminsky, Graciela, 1998. "On crises, contagion, and confusion," MPRA Paper 13709, University Library of Munich, Germany.
  9. Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
  10. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
  11. Robert J. Barro & Jong-Wha Lee, 2002. "IMF Programs: Who is Chosen and What Are the Effects?," NBER Working Papers 8951, National Bureau of Economic Research, Inc.
  12. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  13. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
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Cited by:

  1. Lee, Jong-Wha & Shin, Kwanho, 2008. "IMF bailouts and moral hazard," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 816-830, September.
  2. Gregor Irwin & David Vines, 2005. "The efficient resolution of capital account crises: how to avoid moral hazard," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(3), pages 233-250.
  3. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Working Papers 07-10, Bank of Canada.
  4. Evrensel, Ayse Y. & Kim, Jong Sung, 2006. "Macroeconomic policies and participation in IMF programs," Economic Systems, Elsevier, vol. 30(3), pages 264-281, October.
  5. Axel Dreher, 2008. "IMF Conditionality: Theory and Evidence," KOF Working papers 08-188, KOF Swiss Economic Institute, ETH Zurich.
  6. Martin Brooke & Rhys R. Mendes & Alex Pienkowski & Eric Santor, 2013. "Sovereign Default and State-Contingent Debt," Discussion Papers 13-3, Bank of Canada.
  7. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
  8. Axel Dreher, 2004. "Does the IMF cause moral hazard? A critical review of the evidence," International Finance 0402003, EconWPA, revised 29 Mar 2004.

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