| Last updated: September 2005
Volume 52, Special Issue
Country InsuranceTito Cordella and Eduardo Levy Yeyati
Full Text of this Article (PDF 248K)
Abstract: In this paper, we examine how country insurance schemes
affect policymakers' incentives to undertake reforms. Such schemes
(especially when made contingent on negative external shocks) are more
likely to foster than to delay reform in crisis-prone volatile economies.
The consequences of country insurance, however, hinge on the nature
of the reforms being considered: “buffering” reforms, aimed
at mitigating the cost of crises, could be partially substituted for,
and ultimately discouraged by, insurance. By contrast, “enhancing”
reforms that pay more generously in the absence of a crisis are likely
to be promoted.
[JEL F30, G22, H50]