01714cas a2200253 a 4500 AALejournalIMF001702 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451855913 1018-5941 BD-DhAAL BD-DhAAL Clark, Peter. International Financial Contagion and the IMF : A Theoretical Framework / Peter Clark, Haizhou Huang. Washington, D.C. : International Monetary Fund, 2001. 1 online resource (31 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We provide a model of contagion where countries borrow or lend for consumption smoothing at the market interest rate or a lower IMF rate. Highly indebted countries hit by large negative shocks to output will default. The resulting reduction in loanable funds raises interest rates, increases the vulnerability of other indebted countries, and can generate further rounds of defaults. In this environment the IMF can limit default and internalize the externality generated by contagion through its lending with conditionality. We characterize the IMF's optimal lending decision in mitigating the loss in world consumption. Mode of access: Internet Huang, Haizhou. IMF Working Papers; Working Paper ; No. 2001/137 Full text available on IMF http://elibrary.imf.org/view/journals/001/2001/137/001.2001.issue-137-en.xml IMF e-Library