IDEAS home Printed from https://ideas.repec.org/p/udt/wpbsdt/ocho.html
   My bibliography  Save this paper

Liquidity Protection versus Moral Hazard: The Role of the IMF

Author

Listed:
  • Andrew Powell y Leandro Arozamena

Abstract

This paper develops a simple game between the IMF a county and a set of atomistic private investors. The model is motivated by the case of Argentina. Under reasonable assumptions, the one shot game has no Nash equilibrium in pure strategies. Considering an equilibrium in mixed strategies, conditions are derived on whether the IMF should exist. A “cooperative first best” may be supported in a repeated game by a “minimum punishment strategy” that may be optimal but may break down if the probability of insolvency rises. This implies that countries are likely to deviate in bad times placing the IMF in an “impossible position”. It is suggested that the international financial architecture (IFA) remains incomplete.

Suggested Citation

  • Andrew Powell y Leandro Arozamena, 2003. "Liquidity Protection versus Moral Hazard: The Role of the IMF," Business School Working Papers ocho, Universidad Torcuato Di Tella.
  • Handle: RePEc:udt:wpbsdt:ocho
    as

    Download full text from publisher

    File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-092003.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andy Haldane, Bank of England & Mark Kruger, Bank of Canada, 2002. "The Resolution of International Financial Crises: Private Finance and Public Funds," Bank of Canada Review, Bank of Canada, vol. 2001(Winter), pages 3-13.
    2. Eichengreen, Barry & Ruhl, Christof, 2001. "The bail-in problem: systematic goals, ad hoc means," Economic Systems, Elsevier, vol. 25(1), pages 3-32, March.
    3. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    4. 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.
    5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    6. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
    7. Sayantan Ghosal & Marcus Miller, 2003. "Co-ordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures," Economic Journal, Royal Economic Society, vol. 113(487), pages 276-304, April.
    8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    9. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc.
    10. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
    11. Michael P. Dooley & Sujata Verma, 2003. "Rescue Packages and Output Losses Following Crises," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 125-186 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cavallo, Eduardo & Powell, Andrew & Pedemonte, Mathieu & Tavella, Pilar, 2015. "A new taxonomy of Sudden Stops: Which Sudden Stops should countries be most concerned about?," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 47-70.
    2. Noy, Ilan, 2008. "Sovereign default risk, the IMF and creditor moral hazard," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(1), pages 64-78, February.
    3. Ilan Noy, 2004. "Do IMF Bailouts Result in Moral Hazard? An Events-Study Approach," Working Papers 200402, University of Hawaii at Manoa, Department of Economics.
    4. Goderis, Benedikt & Wagner, Wolf, 2009. "Credit Derivatives and Sovereign Debt Crises," MPRA Paper 17314, University Library of Munich, Germany.
    5. Cavallo, Eduardo A. & Fernández-Arias, Eduardo & Powell, Andrew, 2014. "Is the Euro-zone on the Mend? Latin American examples to analyze the Euro question," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 243-257.
    6. 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.
    7. Ugo Panizza, 2013. "Do We Need a Mechanism for Solving Sovereign Debt Crises? A Rule-Based Discussion," IHEID Working Papers 03-2013, Economics Section, The Graduate Institute of International Studies.
    8. Marta Rubio-Codina & Orazio Attanasio & Costas Meghir & Natalia Varela & Sally Grantham-McGregor, 2015. "The Socioeconomic Gradient of Child Development: Cross-Sectional Evidence from Children 6–42 Months in Bogota," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 464-483.
    9. Martin Steinwand & Randall Stone, 2008. "The International Monetary Fund: A review of the recent evidence," The Review of International Organizations, Springer, vol. 3(2), pages 123-149, June.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:udt:wpbsdt:ocho. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicolás Del Ponte). General contact details of provider: http://edirc.repec.org/data/eeutdar.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.