Does the IMF Cause Moral Hazard? A Critical Review of the Evidence

Abstract

The paper provides a critical review of empirical studies on IMF induced moral hazard. Taken together, there is considerable evidence that the insurance provided by the Fund leads to moral hazard with investors in bond markets. Although less frequently investigated, there is also evidence that debtor governments ’ policies are negatively influenced by the insurance. Their policies are more expansive leading to higher probabilities of IMF programs.

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