Can Debt Crises Be Self-Fulfilling?

No 04/99, IMF Working Papers from International Monetary Fund

Abstract: Several papers argue that debt crises can be the result of self-fulfilling expectations that no one will lend to a country. I show this type of coordination failure can be eliminated by a combination of state-contingent securities and a mechanism that allows investors to promise to lend only if enough other investors do so as well. This suggests that runs on the debt of a single borrower (such as the government) can be eliminated, and that self-fulfilling features are more plausible when articulated in a context in which externalities among many decentralized borrowers allow for economy-wide debt runs to occur.

Keywords: Financial crisis; External debt; Public debt; Crisis prevention; Liquidity (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-sea
Date: 2004-06-29
View list of references View citations in EconPapers

Downloads: (external link)
http://www.imf.org/external/pubs/ft/wp/2004/wp0499.pdf (application/pdf)

Related works:
Journal Article: Can debt crises be self-fulfilling? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund
Address: International Monetary Fund, Washington, DC USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().