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Recurrent Debt Problems and International Safety Nets

  • Eduardo Levy Yeyati

In this paper, I revisit the moral hazard arguments in order to discuss alternative approaches to the role of the IFIs. In particular, I distinguish between lender, borrower and government moral hazard, according to how the costs and benefits of IFI intervention are distributed among the relevant players, and argue that it is the latter problem that should be at the center of the debate. In this light, I analyze the consequences of alternative modus operandi of the IFIs. I conclude that both casual evidence and economic analysis suggest that an explicit international safety net, by enhancing the expected returns of good policies as perceived by the government, may create the right incentives outweighing hazard considerations and, as a result, may help reduce the incidence of recurrent debt problems.

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-092004.pdf
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Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number safetynets.

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Length: 19 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:udt:wpbsdt:safetynets
Contact details of provider: Postal: Miñones 2177 - (1428) Buenos Aires
Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994

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  1. Michael Mussa, 1999. "Reforming the International Financial Architecture: Limiting Moral Hazard and Containing Real Hazard," RBA Annual Conference Volume, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia.
  2. Tito Cordella & Eduardo Levy Yeyati, 2004. "Country Insurance," Business School Working Papers countryinsurance, Universidad Torcuato Di Tella.
  3. Fernandez, Raquel & Rosenthal, Robert W, 1990. "Strategic Models of Sovereign-Debt Renegotiations," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 331-49, July.
  4. Cordella, Tito & Yeyati, Eduardo Levy, 2003. "Bank bailouts: moral hazard vs. value effect," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 300-330, October.
  5. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  6. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  7. 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.
  8. repec:rus:hseeco:123922 is not listed on IDEAS
  9. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
  10. Alejandro Izquierdo & Ernesto Talvi & Guillermo A. Calvo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," Research Department Publications 4299, Inter-American Development Bank, Research Department.
  11. Augusto de la Torre & Eduardo Levy Yeyati & Sergio L. Schmukler, 2002. "Financial globalization: Unequal blessings," Business School Working Papers veintinueve, Universidad Torcuato Di Tella.
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