Can Output Losses Following International Financial Crises Be Avoided?

30 Pages Posted: 30 Apr 2000 Last revised: 15 Oct 2010

See all articles by Michael P. Dooley

Michael P. Dooley

University of California at Santa Cruz; National Bureau of Economic Research (NBER)

Date Written: February 2000

Abstract

Recent financial crises in emerging markets have been followed by temporary but substantial losses in output. This paper explores the possibility that threats of such losses are the dominant incentive for repayment of international debt. In this environment private debtors and creditors have strong incentives to design international contracts so that renegotiation is costly. Such contracts generate dead weight losses and proposals for reform of the international monetary system that modify explicit and implicit contractual arrangements and can be welfare improving under special circumstances. However, such proposals might also weaken the incentives that make private international debt possible.

Suggested Citation

Dooley, Michael P., Can Output Losses Following International Financial Crises Be Avoided? (February 2000). NBER Working Paper No. w7531. Available at SSRN: https://ssrn.com/abstract=216008

Michael P. Dooley (Contact Author)

University of California at Santa Cruz ( email )

Santa Cruz, CA 95064
United States
510-459-3662 (Phone)
510-459-5900 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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