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Does the IMF cause moral hazard? A critical review of the evidence

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  • Axel Dreher

Abstract

The paper provides a critical review of empirical studies on IMF induced moral hazard. Taken together, there is considerable evidence that the insurance provided by the Fund leads to moral hazard with investors in bond markets, while moral hazard in equity markets has so far not been convincingly tested. Debtor moral hazard has much less frequently been investigated, and the counterfactual is more difficult to construct. There is, however, evidence that debtor governments’ policies are negatively influenced by the insurance. Their policies are more expansive leading to higher probabilities of IMF programs and shorter inter-program-periods.

Suggested Citation

  • Axel Dreher, 2004. "Does the IMF cause moral hazard? A critical review of the evidence," International Finance 0402003, EconWPA, revised 20 Dec 2004.
  • Handle: RePEc:wpa:wuwpif:0402003
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0402/0402003.pdf
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    References listed on IDEAS

    as
    1. Prasanna Gai & Ashley Taylor, 2004. "International Financial Rescues and Debtor-Country Moral Hazard," International Finance, Wiley Blackwell, vol. 7(3), pages 391-420, December.
    2. Dreher, Axel, 2006. "IMF and economic growth: The effects of programs, loans, and compliance with conditionality," World Development, Elsevier, vol. 34(5), pages 769-788, May.
    3. Giovanni Dell'Ariccia & Jeronimo Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending; A Test," IMF Working Papers 02/181, International Monetary Fund.
    4. Axel Dreher, 2003. "The influence of elections on IMF programme interruptions," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 101-120.
    5. Andrew G Haldane & Jorg Scheibe, 2004. "IMF lending and creditor moral hazard," Bank of England working papers 216, Bank of England.
    6. Boockmann, Bernhard & Dreher, Axel, 2003. "The contribution of the IMF and the World Bank to economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 633-649, September.
    7. Ali M. Kutan & Ayse Y. Evrensel, 2004. "Creditor Moral Hazard in Equity Markets: A Theoretical Framework and Evidence from Indonesia and Korea," William Davidson Institute Working Papers Series 2004-659, William Davidson Institute at the University of Michigan.
    8. Axel Dreher & Roland Vaubel, 2004. "Do IMF and IBRD Cause Moral Hazard and Political Business Cycles? Evidence from Panel Data," Open Economies Review, Springer, vol. 15(1), pages 5-22, January.
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    Cited by:

    1. Bernal, Oscar & Oosterlinck, Kim & Szafarz, Ariane, 2010. "Observing bailout expectations during a total eclipse of the sun," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1193-1205, November.
    2. Bratis, Theodoros & Laopodis, Nikiforos T. & Kouretas, Georgios P., 2015. "Creditor moral hazard during the EMU debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 122-135.
    3. 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.
    4. Lee, Jong-Wha & Shin, Kwanho, 2008. "IMF bailouts and moral hazard," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 816-830, September.
    5. Reynaud, Julien & Vauday, Julien, 2009. "Geopolitics and international organizations: An empirical study on IMF facilities," Journal of Development Economics, Elsevier, vol. 89(1), pages 139-162, May.
    6. Dreher, Axel, 2006. "IMF and economic growth: The effects of programs, loans, and compliance with conditionality," World Development, Elsevier, vol. 34(5), pages 769-788, May.
    7. Reynaud, Julien & Vauday, Julien, 2008. "IMF lending and geopolitics," Working Paper Series 965, European Central Bank.
    8. Pablo Moreno, 2013. "The Metamorphosis of the IMF (2009-2011)," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 78, June.
    9. Jun I Kim, 2007. "Unconditional IMF Financial Support and Investor Moral Hazard," IMF Working Papers 07/104, International Monetary Fund.
    10. Jörg Guido Hülsmann, 2006. "The political economy of moral hazard," Politická ekonomie, University of Economics, Prague, vol. 2006(1), pages 35-47.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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