IMF Bailouts and Moral Hazard

36 Pages Posted: 4 Jan 2005

Date Written: December 2004

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

JEL Classification: F33, F34

Suggested Citation

Lee, Jong-Wha and Shin, Kwanho, IMF Bailouts and Moral Hazard (December 2004). Available at SSRN: https://ssrn.com/abstract=640388 or http://dx.doi.org/10.2139/ssrn.640388

Jong-Wha Lee

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

Kwanho Shin (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Sunbuk-Ku, Department of Economics
Seoul 136-701
Korea
82-2-3290-2220 (Phone)
82-2-3290-2719 (Fax)

HOME PAGE: econ.korea.ac.kr/~khshin

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