Debt and Conditionality under Endogenous Terms of Trade Adjustment

The purpose of this study is to identify conditions under which renewed international. lending will benefit both the developed and the developing countries. Our analysis will evaluate how the presence of terms of trade adjust-rent and distorted credit markets affect the conditions for the existence of beneficial lending. We demonstrate that in the presence of endogenous terms of trade adjustment, there are cases in which a competitive international banking system may not revitalize lending for investment purposes, even if such renewed lending is socially desirable, Renewed lending may require the appropriate conditionality, and the presence of endogenous terms of trade adjustment puts greater weight on investment conditionality.

Strategic Investment in a Debt Bargaining Framework

This paper analyzes the strategic role of investment from a debtor country's perspective. The framework is one in which, if the debtor country is unable to meet debt obligations, a bargaining regime determines the amount of debt repayment. In the context of a two-country real trade model, debt repayment is equal to the trade surplus of the debtor. The outcome of the bargaining game will therefore be dependent (among other things) on the level of production in the debtor country. In this framework, the paper shows that productive investment may increase or decrease the bargaining power of the debtor country. This ambiguity appears to be fairly robust.

A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds

This article explores the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to December 2000. The degree of herding among funds is statistically significant, but moderate. Herding is more widespread among open-ended funds than among closed-end funds, but not more prevalent during crises than during tranquil times. We find some evidence that funds tend to follow momentum strategies, selling past losers and buying past winners. Copyright 2003, International Monetary Fund