Does the IMF's official support affect sovereign bonds maturities?

Aitor Erce

No 128, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper looks at whether the tendency of some governments to borrow short term is reinforced by financial support from the International Monetary Fund. I first present a model of sovereign debt issuance at various maturities featuring endogenous liquidity crises and maturity mismatches due to financial under-development. I use the model to analyse the impact of IMF lending during debt crises on the sovereign's optimal maturity structure. Within the model, although IMF assistance is able to catalyse private flows, this provides incentives for government to issue larger amounts of short-term debt, making the roll-over problem larger. I take the model to the data and find support for the hypothesis that IMF lending leads countries to increase their short-term borrowing. Additionally, I do not find any positive effect of IMF lending on countries' ability to tap international capital markets. These results help explain why a catalytic effect of IMF lending has proved empirically elusive.

Keywords: Loans; Debt (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:128

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