IMF Bailouts and Moral Hazard

Jong-Wha Lee and Kwanho Shin

International Finance from University Library of Munich, Germany

Abstract: This paper empirically investigates the extent of investor moral hazard associated with IMF bailouts by analyzing the responses of sovereign bond spreads to the changes in the perceived probability of IMF bailouts of countries undergoing financial crisis. We do not find strong evidence that the extent of investor moral hazard changed after the non-bailout of Russia in August 1998 that signaled a modification to IMF intervention policy. In contrast, we find evidence that investor moral hazard is intensified for those countries that have stronger political connections to the IMF and that are thereby more likely to be bailed out by the IMF. This pattern prevailed even after the Russian crisis.

Keywords: IMF; moral hazard; sovereign bond spreads; international financial architecture (search for similar items in EconPapers)
JEL-codes: F33 F34 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-01-28
New Economics Papers: this item is included in nep-pol
Note: Type of Document - pdf; pages: 36
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: IMF bailouts and moral hazard (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0501005

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