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...

Developing countries are constrained in financing current account deficits as real capital mobility is still far from perfect. At the same time, capital flows to these countries proved to be extremely volatile. The paper argues that the long-term problem of "too little" should not be confused...