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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.

Suggested Citation

  • Prasanna Gai & Ashley Taylor, 2004. "International financial rescues and debtor-country moral hazard," Bank of England working papers 217, Bank of England.
  • Handle: RePEc:boe:boeewp:217
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP217.pdf
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    References listed on IDEAS

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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. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
    3. 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.
    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. Li, Larry & Sy, Malick & McMurray, Adela, 2015. "Insights into the IMF bailout debate: A review and research agenda," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 891-914.
    6. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
    7. Philipp Maier, 2007. "Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring," Staff Working Papers 07-10, Bank of Canada.
    8. Brooke, Martin & Pienkowski, Alex & Mendes, Rhys & Santor, Eric, 2013. "Financial Stability Paper No 27: Sovereign Default and State-Contingent Debt," Bank of England Financial Stability Papers 27, Bank of England.
    9. Axel Dreher, 2004. "Does the IMF cause moral hazard? A critical review of the evidence," International Finance 0402003, EconWPA, revised 20 Dec 2004.
    10. Martin Brooke & Rhys R. Mendes & Alex Pienkowski & Eric Santor, 2013. "Sovereign Default and State-Contingent Debt," Discussion Papers 13-3, Bank of Canada.

    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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