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Can Output Losses Following International Financial Crises be Avoided?

  • Michael P. Dooley

Recent financial crises in emerging markets have been followed by temporary but substantial losses in output. This paper explores the possibility that threats of such losses are the dominant incentive for repayment of international debt. In this environment private debtors and creditors have strong incentives to design international contracts so that renegotiation is costly. Such contracts generate dead weight losses and proposals for reform of the international monetary system that modify explicit and implicit contractual arrangements and can be welfare improving under special circumstances. However, such proposals might also weaken the incentives that make private international debt possible.

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File URL: http://www.nber.org/papers/w7531.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7531.

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Date of creation: Feb 2000
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Publication status: published as Dooley, Michael P. "International Financial Architecture And Strategic Default: Can Financial Crises Be Less Painful?," Carnegic-Rochester Conference Series on Public PolicyP, 2000, v53(1), 361-377.
Handle: RePEc:nbr:nberwo:7531
Note: IFM
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  1. V.V. Chari & Patrick J. Kehoe, 1999. "Asking the right questions about the IMF," Annual Report, Federal Reserve Bank of Minneapolis, pages 3-26.
  2. Gertler, Mark & Rogoff, Kenneth, 1990. "North-South lending and endogenous domestic capital market inefficiencies," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 245-266, October.
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  5. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
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  7. Richard N. Cooper, 1992. "Economic Stabilization and Debt in Developing Countries," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031876, June.
  8. Marcus Miller & Joseph Stiglitz, 1999. "Bankruptcy Protection Against Macroeconomics Shocks: The case for a 'super Chapter 11'," CSGR Hot Topics: Research on Current Issues 08, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  9. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  10. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  11. Amar Bhattacharya & Marcus Miller, 1999. "Coping with Crises: Is There a "Silver Bullet"?," CSGR Hot Topics: Research on Current Issues 06, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  12. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
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