Toward a Lender of First Resort /

If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the "good" over the "...

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Podrobná bibliografie
Hlavní autor: Cohen, Daniel
Další autoři: Portes, Richard
Médium: Časopis
Jazyk:English
Vydáno: Washington, D.C. : International Monetary Fund, 2006.
Edice:IMF Working Papers; Working Paper ; No. 2006/066
On-line přístup:Full text available on IMF
Popis
Shrnutí:If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the "good" over the "bad" equilibrium. We propose a policy intervention to deal with this structural weakness in the mechanisms of international capital flows. This is based on a simple taxonomy that breaks down the origin of crises into three components: confidence (spreads and currency crisis), fundamentals (real growth rate), and economic policy (primary deficit). Theory then suggests a set of circumstances in which a lender of first resort would be desirable. The policy would seek to short-circuit confidence crises, partly by using IMF support to improve ex ante incentives. Theory also illuminates the potential role of collective action clauses in reducing the risk of self-fulfilling debt crises.
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Fyzický popis:1 online resource (26 pages)
Médium:Mode of access: Internet
ISSN:1018-5941
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