IMF's assistance: Devil's kiss or guardian angel?

Julia Brandes and Tobias Schüle

No 310, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This paper contributes to the debate on the efficacy of IMF's catalytic finance in preventing financial crises. Extending Morris and Shin (2006), we consider that the IMF's intervention policy usually exerts a signaling effect on private creditors and that several interventions in sequence may be necessary to avert an impending crisis. Absent of the IMF's signaling ability, our results state that repeated intervention is required to bail out a country, where by additional assistance may induce moral hazard on the debtor side. Contrarily, if the IMF exerts a strong signaling effect, one single intervention suffices to avoid liquidity crises.

Keywords: catalytic finance; debtor moral hazard; global games (search for similar items in EconPapers)
JEL-codes: C72 D82 F33 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:310

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