Catalytic Finance: When Does It Work?

Authors

Stephen Morris
Hyun Song Shin

Document Type

Discussion Paper

Publication Date

2-1-2003

CFDP Number

1400

CFDP Pages

20

Abstract

In a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post inefficiency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.

Recommended Citation

Morris, Stephen and Shin, Hyun Song, "Catalytic Finance: When Does It Work?" (2003). Cowles Foundation Discussion Papers. 1668.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1668