A Theory of International Crisis Lending and IMF Conditionality

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Price:  $18.00

Author/Editor: Jeronimo Zettelmeyer, Jonathan David Ostry, Olivier Jeanne
Release Date: © October, 2008
ISBN : 978-1-45187-094-7
Stock #: WPIEA2008236
Stock Status: On back-order

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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.


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

More publications in this series: Working Papers

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