A Theory of International Crisis Lending and IMF Conditionality

WPIEA2008236 Image
Price:  $18.00

Author/Editor: Olivier Jeanne, Jonathan David Ostry, Jeromin Zettelmeyer
Release Date: © October, 2008
ISBN : 978-1-45187-094-7
Stock #: WPIEA2008236
English
Stock Status: Available

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Description

We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts-"ex ante" conditionality.

Taxonomy

Crisis prevention , Financial crisis , IMF governance and operations , International financial system , Operations




More publications in this series: Working Papers


More publications by: Olivier Jeanne ; Jonathan David Ostry ; Jeromin Zettelmeyer