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Country Insurance

Eduardo Levy Yeyati () and Tito Cordella ()

No 136, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: To understand the consequences of the presence of international safety nets on governments' incentives to undertake reforms, we model IFIs´ interventions as country insurance policies. We find that country insurance (especially when made contingent on negative external shocks) is more likely to foster reforms in crisis-prone volatile economies. The consequences of country insurance on reform incentives, however, hinge on the nature of the reforms being considered: "buffering" reforms aimed at mitigating the cost of crises will be partially substituted for by insurance, and may be ultimately discouraged; by contrast, "enhancing" reforms that pay off more generously in the absence of a crisis will instead be promoted

Keywords: Bailouts; Moral Hazard; Insurance Effect; International Lender of Last Resort; Financial Crises (search for similar items in EconPapers)
JEL-codes: F30 G22 H50 (search for similar items in EconPapers)
Date: 2004-08-11
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