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A Theory of International Crisis Lending and IMF Conditionality

A Theory of International Crisis Lending and IMF Conditionality by Jeromin Zettelmeyer
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We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts-"ex ante" conditionality.
International Monetary Fund; October 2008
33 pages; ISBN 9781451999389
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Title: A Theory of International Crisis Lending and IMF Conditionality
Author: Jeromin Zettelmeyer; Jonathan David Ostry; Olivier Jeanne
 
ISBNs
1451915470
9781451870947
9781451915471
9781451999389