European Parliament Library

The Mussa Theorem (and Other Results on IMF-Induced Moral Hazard), Olivier Jeanne, Jeromin Zettelmeyer

Using a simple model of international lending, we show that as long as the IMF lends at an actuarially fair interest rate and debtor governments maximize the welfare of their taxpayers, any changes in policy effort, capital flows, or borrowing costs in response to IMF crisis lending are efficient. Thus, under these assumptions, the IMF cannot cause moral hazard, as argued by Michael Mussa (1999, 2004). It follows that examining the effects of IMF lending on capital flows or borrowing costs is not a useful strategy to test for IMF-induced moral hazard. Instead, empirical research on moral hazard should focus on the assumptions of the Mussa theorem
Table Of Contents
""Contents""; ""I. INTRODUCTION""; ""II. A SIMPLE MODEL OF THE IMF""; ""A. Assumptions""; ""B. Laissez-Faire""; ""C. Effects of IMF Lending""; ""D. The Mussa Theorem""; ""E. Two Doors for Moral Hazard to Come Back""; ""III. IMPLICATIONS OF THE MUSSA THEOREM""; ""A. Implications for the Empirical Literature on IMF-Induced Moral Hazard""; ""B. Implications for IMF Lending Policies""; ""IV. CONCLUSIONS""; ""References""
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (26 p.)
Specific Material Designation
Form Of Item

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