Financial Stability Review
International Finance Articles
2003
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
The
Catalytic Effect of IMF Lending: a Critical Review
(112k)
(Issue 15, December 2003)
Given the scale of capital flight in recent capital account crises, IMF (International Monetary Fund) lending packages have reached record sizes. The IMF hoped that these large programmes would catalyse private capital flows by restoring confidence and attracting renewed investment, but recent theoretical analysis suggests that this catalytic effect is fragile and will only work in limited circumstances. Empirical evidence bears this out: in most cases the expected turn-around in capital flows has failed to materialise. There is merit, therefore, in further consideration of alternative responses to capital account crises, including payments standstills and roll-overs.
Assessing
Sovereign Debt Under Uncertainty
(191k)
(Issue 15, December 2003)
Traditional techniques to assess whether a country's stock of public debt is sustainable fail to illustrate adequately the uncertainty about the future state of the economy. This article proposes a new approach that attempts to address this issue. The method is similar in spirit to that used to generate the so-called inflation forecast 'fan charts' published in the Bank of England Inflation Report. It illustrates the probabilistic nature of debt dynamics by assuming that the shocks to key inputs for debt sustainability come from joint distributions and persist through time. The model may be used to measure the probability of certain debt outcomes and to assess several interrelated questions on debt sustainability. In particular, it could prove useful when assessing the viability of IMF programmes, especially in the context of exceptional access to IMF funds.
Moral
Hazard: How Does IMF Lending Affect Debtor and Creditor Incentives?
(107k)
(Issue 14, June 2003)
When the IMF lends to countries in crisis does this distort materially the risk-taking incentives of debtors and creditors - so-called 'moral hazard'? The existing literature is undecided. In this article, we take a critical look at the existing evidence and present some new evidence of our own. Taken together, it suggests that debtor and creditor moral hazard has been, and remains, a concern.
Key Resources
|
Memorandum of Understanding between HM Treasury,
the Bank of England and the Financial Services Authority
Download PDF (50k) |
