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A Theory of International Crisis Lending and IMF Conditionality


  • Jeronimo Zettelmeyer
  • Jonathan David Ostry
  • Olivier D Jeanne


We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts-"ex ante" conditionality.

Suggested Citation

  • Jeronimo Zettelmeyer & Jonathan David Ostry & Olivier D Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 08/236, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/236

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    References listed on IDEAS

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    Cited by:

    1. Fratzscher, Marcel & Reynaud, Julien, 2011. "IMF surveillance and financial markets--A political economy analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 405-422, September.
    2. Eduardo Fernández-Arias & Andrew Powell & Alessandro Rebucci, 2009. "The Multilateral Response to the Global Crisis: Rationale, Modalities, and Feasibility," IDB Publications (Working Papers) 1653, Inter-American Development Bank.
    3. Eduardo Fernandez-Arias, 2010. "Multilateral Safety Nets for Financial Crises," Research Department Publications 4668, Inter-American Development Bank, Research Department.
    4. Daniel Kapp, 2012. "The optimal size of the European Stability Mechanism: A cost-benefit analysis," DNB Working Papers 349, Netherlands Central Bank, Research Department.
    5. 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.
    6. Beatrice D. Scheubel & Livio Stracca, 2016. "What Do We Know About the Global Financial Safety Net? A New Comprehensive Data Set," CESifo Working Paper Series 6184, CESifo Group Munich.
    7. Scheubel, Beatrice & Herrala, Risto & Stracca, Livio, 2016. "What do we know about the global financial safety net? Data, rationale and possible evolution," Annual Conference 2016 (Augsburg): Demographic Change 145676, Verein für Socialpolitik / German Economic Association.

    More about this item


    Financial crisis; Crisis prevention; Fund role; Moral hazard; International Monetary Fund; Spillovers; ex ante conditionality; conditionality; crisis lending; ante conditionality;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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