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Credit Rationing in Emerging Economies' Access to Global Capital Markets

  • Edda Zoli
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    This paper tests empirically the theoretical prediction that the country premium paid by emerging economies on sovereign debt increases with the amount of debt up to a certain critical level, above which the supply of foreign funds becomes fixed. The results confirm this theoretical prediction. The approach developed in the paper is also used to test for the presence of moral hazard in international lending. The results indicate significant changes in the supply of funds curve consistent with the presence of moral hazard in the period immediately following the Mexican rescue operation, but not after the Russian non-bailout.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17252
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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/70.

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    Length: 30
    Date of creation: 01 Apr 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/70
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    1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    2. Feder, Gershon & Just, Richard E., 1977. "An analysis of credit terms in the eurodollar market," European Economic Review, Elsevier, vol. 9(2), pages 221-243.
    3. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
    4. Vassilis A. Hajivassiliou, 1989. "Do the Secondary Markets Believe in Life After Debt?," Cowles Foundation Discussion Papers 911, Cowles Foundation for Research in Economics, Yale University.
    5. Allan H. Meltzer, 1998. "Asian Problems and the IMF," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), pages 264-274, Winter.
    6. Ozler, Sule & Tabellini, Guido, 1991. "External Debt and Political Instability," CEPR Discussion Papers 582, C.E.P.R. Discussion Papers.
    7. Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
    8. Walter B. Wriston, 1998. "Dumb Networks and Smart Capital," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), Winter.
    9. Nunnenkamp, Peter, 1999. "The moral hazard of IMF lending: Making a fuss about a minor problem?," Kiel Discussion Papers 332, Kiel Institute for the World Economy (IfW).
    10. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    11. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
    12. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Jun).
    13. Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers 205, Bank of England.
    14. Huizinga, H.P., 1989. "The commercial bank claims on developing countries : How have the banks been affected?," Other publications TiSEM 1c3c7fe3-3bdf-42d9-9f7c-6, Tilburg University, School of Economics and Management.
    15. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
    16. Brealey, R. A. & Kaplanis, E., 2004. "The impact of IMF programs on asset values," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 253-270, March.
    17. 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.
    18. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
    19. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.).
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