The Role of Preference Structure and Moral Hazard in a Multiple Equilibria. Model of Financial Crises

Sergio Masciantonio ()

Rivista di Politica Economica, 2005, vol. 95, issue 6, 135-165

Abstract: This paper proposes an analysis of financial crises by a multiple equilibria model, based on the assumption of common knowledge. This model modifies and broadens the Corsetti, Guimaraes and Roubini (2003) model based on global games theory. In the first part we assert the implications for the International Monetary Fund (IMF) as an international lender of last resort, utilising existing literature based on multiple equilibria models. In the second part, we extend the analysis and highlight the interesting implications. The model predicts the IMF should not be too conservative in its decisions, while avoiding the excessive liquidity supports, which can lead to moral hazard distortions.

JEL-codes: F33 F34 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:95:y:2005:i:6:p:135-165

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