The IMF in a World of Private Capital Markets / Barry Eichengreen, Kenneth Kletzer, Ashoka Mody.

By:

Eichengreen, Barry

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11198.Publication details: Cambridge, Mass. National Bureau of Economic Research 2005.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.

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Working Paper	Biblioteca Digital	Colección NBER	nber w11198 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w11195 Names, Expectations and the Black-White Test Score Gap /	nber w11196 Corporate Taxation and Bilateral FDI with Threshold Barriers /	nber w11197 Do Firms Go Public to Raise Capital? /	nber w11198 The IMF in a World of Private Capital Markets /	nber w11199 Slow Passthrough Around the World: A New Import for Developing Countries? /	nber w1120 International Balance of Payments Financing and Adjustment /	nber w11200 Systemic Risk and Hedge Funds /	Next

March 2005.

The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.