In a simple model of currency crises caused by creditor coordination failure, we show that bailouts that reduce ex post ineﬀiciency will sometimes create ex ante moral hazard but will sometimes enhance the incentives for governments to take preventative actions. This model helps us understand a debate about the role of the IMF in catalyzing lending to developing countries.
Moral hazard, Financial crisis, International ﬁnancial architecture, Global games
JEL Classification Codes: C72, D82, F33
Published in Journal of International Economics (September 2006), 70(1): 161-177 [DOI]