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The recent wave of financial crises has fueled the debate on the effect of IFIs intervention on governments' incentives to undertake reforms. In this paper we treat this intervention more generally as a country insurance contract, and examine its implications in a stylized set-up. More precisely, we identify the conditions under which the positive insurance effect dominates moral hazard considerations, and the channels through which this is achieved. In particular, we find that the case for country insurance is stronger for crisis-prone volatile economies, especially so if assistance is made contingent on the occurrence of adverse external macroeconomic shocks. Overall, our findings argue in favor of fairly-priced country insurance or insurance-type standing credit facilities that can be factored in ex ante by the borrowing government, as opposed to the customized discretionary bailouts
General, National Government Expenditures and Related Policies: General, [Financial crises;Insurance;Moral hazard;Bailouts, insurance effect, market bond, hedging, capital market, bond, International Finance], Financial Crises, Bailouts, Moral Hazard, Insurance Effect,, jel: jel:F30, jel: jel:H50, jel: jel:G22
General, National Government Expenditures and Related Policies: General, [Financial crises;Insurance;Moral hazard;Bailouts, insurance effect, market bond, hedging, capital market, bond, International Finance], Financial Crises, Bailouts, Moral Hazard, Insurance Effect,, jel: jel:F30, jel: jel:H50, jel: jel:G22
citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically). | 17 | |
popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network. | Average | |
influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically). | Top 10% | |
impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network. | Top 10% |