The efficient resolution of capital account crises
Subtitle: how to avoid moral hazard
By: by Gregor Irwin and David Vines.
Contributors: Vines, David; Bank of England.
Series: Working paper,; no. 233; Working paper (Bank of England : Online) ;; no.233.
Publisher: Bank of England
Published: 2004
Place of publication: London
Language: eng
Format: Electronic resource
Subjects: Balance of payments.; Liquidity (Economics)
Description: "This paper presents a model of capital account crises and uses it to study resolution mechanisms for both liquidity and solvency crises. It shows that liquidity crises should be dealt with by a standstill combined with IMF lending into arrears, whereas solvency crises should be resolved by debt write-downs. Dealing with solvency crises by lending would require a subsidy and this creates moral hazard, such as incentives for excessive borrowing, for too little equity financing and for investment in projects that are inefficient. The analysis underlines the importance of accurately assessing whether a crisis is rooted in a liquidity or a solvency problem"--Bank of England web site.
Notes: Includes bibliographical references.
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