Private Sector Involvement and International Financial Crises: An Analytical Perspective

Hardcover | December 15, 2004

byMichael Chui, Prasanna Gai

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Offering an analytical perspective on the design and reform of the international financial architecture, this book stresses the important role played by creditor co-ordination problems in the origin and management of crises by relating the insights of the new literature on global games toearlier work on currency crises, bank runs, and sovereign debt default. It examines the design of sovereign bankruptcy procedures, the role of the IMF in influencing creditors and debtor countries, and the currency composition of sovereign debt, and draws on recent research and policy work.The book's first part provides a critical synthesis of the literature underpinning the architecture debate. It reviews the traditional distinction between "fundamentals-based" and "sunspot-based" crises before reconciling the two using global game methods. The role of co-ordination problems insparking costly liquidation and influencing the debtor's incentives to repay is then examined in depth and shown to lie at the heart of crisis management policy. The empirical literature on leading indicators of crisis is also critically examined and related to the architecture debate.In its second part the book examines key issues in crisis management. Suggesting that optimal reforms must set the inefficiencies of crisis against the inefficiencies of debtor moral hazard, the authors consider the relative merits of statutory and contractual solutions to sovereign debt workouts.They go on to discuss the role of the IMF in influencing private lending and debtor moral hazard, theoretically and empirically. They argue that there is no simple relationship between ex post crisis management and ex ante moral hazard, implying that the handling of financial crises is a delicateaffair warranting a cautious approach by would-be architects.

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Offering an analytical perspective on the design and reform of the international financial architecture, this book stresses the important role played by creditor co-ordination problems in the origin and management of crises by relating the insights of the new literature on global games toearlier work on currency crises, bank runs, and ...

Prasanna Gai is a Fellow of the Research School of Pacific and Asian Studies at the Australian National University. He has been a Senior Adviser at the Bank of England (1994-2001), Senior Research Associate in the Financial Markets Group at the London School of Economics, and a Consultant to the Bank of England on international financ...

other books by Michael Chui

Format:HardcoverDimensions:224 pages, 9.21 × 6.14 × 0.7 inPublished:December 15, 2004Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0199267758

ISBN - 13:9780199267750

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Table of Contents

1. IntroductionPart I: The Analytics of Crisis2. Overview: causes, costs, and prediction3. Sunspot-based models4. Fundamentals-based models5. Reconciling the two views6. Crisis costs and incentives to repay7. Spotting financial crisesPart II: Reforming the International Financial Architecture8. Overview: dealing with crises9. Sovereign debt workouts10. Open issues11. The 'original sin' problem12. Next steps in the debateAppendix A: First-order differential equationAppendix B: Conditional distributionsIndex