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Does the IMF's official support affect sovereign bonds maturities?

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Listed author(s):
  • Aitor Erce

Abstract

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 under-development. 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 help explain why a catalytic effect of IMF lending has proved empirically elusive.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0128.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 128.

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Date of creation: 2012
Handle: RePEc:fip:feddgw:128
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Keywords: Loans ; Debt;

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Cited by:

  1. Erce, Aitor & Riera-Crichton, Daniel, 2015. "Catalytic IMF? a gross flows approach," Globalization and Monetary Policy Institute Working Paper 254, Federal Reserve Bank of Dallas.

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