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The IMF in a world of private capital markets

Author

Listed:
  • Barry Eichengreen
  • Kenneth M. Kletzer
  • Ashoka Mody

Abstract

The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.

Suggested Citation

  • Barry Eichengreen & Kenneth M. Kletzer & Ashoka Mody, 2005. "The IMF in a world of private capital markets," Working Paper Series 2005-12, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2005-12
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    More about this item

    Keywords

    Capital market; Developing countries; International Monetary Fund;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F2 - International Economics - - International Factor Movements and International Business

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    This paper has been announced in the following NEP Reports:

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