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An Analysis of Imf-Induced Moral Hazard

33 Pages Posted: 1 Apr 2002 Last revised: 9 Apr 2014

Barbara Doebeli

Swiss National Bank, International Monetary Relations

Paolo Vanini

University of Basel

Date Written: March 7, 2002

Abstract

Three channels through which the IMF rescue package may affect international leading can be distinguished: debtor-side moral hazard, creditor-side moral hazard, and debtor and creditor-side moral hazard. We show that if the rescue package fully benefits the debtor, no credit contract between him and the creditor arises. The other two kinds of moral hazard, where the creditor receives the rescue package either fully or in part, in crease the scale of international lending relative to the case where no rescue package is forthcoming. The increase is larger if the creditor receives the whole rescue package than if it is shared between the creditor and the debtor.

These results are based on the analysis of two sequential credit relationships, the first one between a bank and a government and the following one between the IMF and the government. Each of these credit relationships is characterized by asymmetric information and modeled by a moral hazard model.The two moral hazard models are linked by considering the different channels of the IMF rescue package.

Keywords: IMF lending, sequential moral hazard model

JEL Classification: D82, F33, F34, G15

Suggested Citation

Doebeli, Barbara and Vanini, Paolo, An Analysis of Imf-Induced Moral Hazard (March 7, 2002). Journal of Banking and Finance, Vol. 28, No. 12, 2004. Available at SSRN: https://ssrn.com/abstract=305372 or http://dx.doi.org/10.2139/ssrn.305372

Barbara Doebeli (Contact Author)

Swiss National Bank, International Monetary Relations ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland
+41 1 631 37 27 (Phone)
+41 1 631 39 80 (Fax)

Paolo Vanini

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

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