International lending of last resort and moral hazard: a model of IMF's catalytic finance
It is often argued that the provision of liquidity by the international institutions such as the IMF to countries experiencing balance of payment problems can have catalytic effects on the behavior of international financial markets, i.e., it can reduce the scale of liquidity runs by inducing invest...
Gespeichert in:
| Hauptverfasser: | , , |
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| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
National Bureau of Economic Research
2003
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| Schriftenreihe: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
10125 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | It is often argued that the provision of liquidity by the international institutions such as the IMF to countries experiencing balance of payment problems can have catalytic effects on the behavior of international financial markets, i.e., it can reduce the scale of liquidity runs by inducing investors to roll over their financial claims to the country. Critics point out that official lending also causes moral hazard distortions: expecting to be bailed out by the IMF, debtor countries have weak incentives to implement good but costly policies, thus raising the probability of a crisis. This paper presents an analytical framework to study the trade-off between official liquidity provision and debtor moral hazard. In our model international financial crises are caused by the interaction of bad fundamentals, self-fulfilling runs and policies by three classes of optimizing agents: international investors, the local government and the IMF. We show how an international financial institution helps prevent liquidity runs via coordination of agents' expectations, by raising the number of investors willing to lend to the country for any given level of the fundamental. We show that the influence of such an institution is increasing in the size of its interventions and the precision of its information: more liquidity support and better information make agents more willing to roll over their debt and reduces the probability of a crisis. Different from the conventional view stressing debtor moral hazard, we show that official lending may actually strengthen a government incentive to implement desirable but costly policies. By worsening the expected return on these policies, destructive liquidity runs may well discourage governments from undertaking them, unless they can count on contingent liquidity assistance. |
| Beschreibung: | 51 S. graph. Darst. |
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 10125 | |
| 520 | 3 | |a It is often argued that the provision of liquidity by the international institutions such as the IMF to countries experiencing balance of payment problems can have catalytic effects on the behavior of international financial markets, i.e., it can reduce the scale of liquidity runs by inducing investors to roll over their financial claims to the country. Critics point out that official lending also causes moral hazard distortions: expecting to be bailed out by the IMF, debtor countries have weak incentives to implement good but costly policies, thus raising the probability of a crisis. This paper presents an analytical framework to study the trade-off between official liquidity provision and debtor moral hazard. In our model international financial crises are caused by the interaction of bad fundamentals, self-fulfilling runs and policies by three classes of optimizing agents: international investors, the local government and the IMF. We show how an international financial institution helps prevent liquidity runs via coordination of agents' expectations, by raising the number of investors willing to lend to the country for any given level of the fundamental. We show that the influence of such an institution is increasing in the size of its interventions and the precision of its information: more liquidity support and better information make agents more willing to roll over their debt and reduces the probability of a crisis. Different from the conventional view stressing debtor moral hazard, we show that official lending may actually strengthen a government incentive to implement desirable but costly policies. By worsening the expected return on these policies, destructive liquidity runs may well discourage governments from undertaking them, unless they can count on contingent liquidity assistance. | |
| 650 | 4 | |a Internationaler Kredit / Moral Hazard / Internationaler Finanzmarkt / Kleines-offenes-Land | |
| 700 | 1 | |a Guimarães, Bernardo |e Verfasser |0 (DE-588)128969989 |4 aut | |
| 700 | 1 | |a Roubini, Nouriel |d 1959- |e Verfasser |0 (DE-588)128969997 |4 aut | |
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| id | DE-604.BV019285132 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T19:43:33Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-012037245 |
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| physical | 51 S. graph. Darst. |
| publishDate | 2003 |
| publishDateSearch | 2003 |
| publishDateSort | 2003 |
| publisher | National Bureau of Economic Research |
| record_format | marc |
| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Corsetti, Giancarlo 1960- Verfasser (DE-588)128969954 aut International lending of last resort and moral hazard a model of IMF's catalytic finance Giancarlo Corsetti ; Bernardo Guimaraes ; Nouriel Roubini Cambridge, Mass. National Bureau of Economic Research 2003 51 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 10125 It is often argued that the provision of liquidity by the international institutions such as the IMF to countries experiencing balance of payment problems can have catalytic effects on the behavior of international financial markets, i.e., it can reduce the scale of liquidity runs by inducing investors to roll over their financial claims to the country. Critics point out that official lending also causes moral hazard distortions: expecting to be bailed out by the IMF, debtor countries have weak incentives to implement good but costly policies, thus raising the probability of a crisis. This paper presents an analytical framework to study the trade-off between official liquidity provision and debtor moral hazard. In our model international financial crises are caused by the interaction of bad fundamentals, self-fulfilling runs and policies by three classes of optimizing agents: international investors, the local government and the IMF. We show how an international financial institution helps prevent liquidity runs via coordination of agents' expectations, by raising the number of investors willing to lend to the country for any given level of the fundamental. We show that the influence of such an institution is increasing in the size of its interventions and the precision of its information: more liquidity support and better information make agents more willing to roll over their debt and reduces the probability of a crisis. Different from the conventional view stressing debtor moral hazard, we show that official lending may actually strengthen a government incentive to implement desirable but costly policies. By worsening the expected return on these policies, destructive liquidity runs may well discourage governments from undertaking them, unless they can count on contingent liquidity assistance. Internationaler Kredit / Moral Hazard / Internationaler Finanzmarkt / Kleines-offenes-Land Guimarães, Bernardo Verfasser (DE-588)128969989 aut Roubini, Nouriel 1959- Verfasser (DE-588)128969997 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 10125 (DE-604)BV002801238 10125 http://papers.nber.org/papers/w10125.pdf kostenfrei Volltext |
| spellingShingle | Corsetti, Giancarlo 1960- Guimarães, Bernardo Roubini, Nouriel 1959- International lending of last resort and moral hazard a model of IMF's catalytic finance National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Internationaler Kredit / Moral Hazard / Internationaler Finanzmarkt / Kleines-offenes-Land |
| title | International lending of last resort and moral hazard a model of IMF's catalytic finance |
| title_auth | International lending of last resort and moral hazard a model of IMF's catalytic finance |
| title_exact_search | International lending of last resort and moral hazard a model of IMF's catalytic finance |
| title_full | International lending of last resort and moral hazard a model of IMF's catalytic finance Giancarlo Corsetti ; Bernardo Guimaraes ; Nouriel Roubini |
| title_fullStr | International lending of last resort and moral hazard a model of IMF's catalytic finance Giancarlo Corsetti ; Bernardo Guimaraes ; Nouriel Roubini |
| title_full_unstemmed | International lending of last resort and moral hazard a model of IMF's catalytic finance Giancarlo Corsetti ; Bernardo Guimaraes ; Nouriel Roubini |
| title_short | International lending of last resort and moral hazard |
| title_sort | international lending of last resort and moral hazard a model of imf s catalytic finance |
| title_sub | a model of IMF's catalytic finance |
| topic | Internationaler Kredit / Moral Hazard / Internationaler Finanzmarkt / Kleines-offenes-Land |
| topic_facet | Internationaler Kredit / Moral Hazard / Internationaler Finanzmarkt / Kleines-offenes-Land |
| url | http://papers.nber.org/papers/w10125.pdf |
| volume_link | (DE-604)BV002801238 |
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