This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Carlos de Resende

Additional information is available for the following registered author(s):

Abstract

The author studies the welfare implications of adjustment programs supported by the International Monetary Fund (IMF). He uses a model where an endogenous borrowing constraint, set up by international lenders who will never lend more than a debt ceiling, forces the borrowing economy to always choose repayment over default. The immediate potential welfare cost of joining a program is driven by IMF conditionality: to be able to borrow from the IMF, the country has to submit to limits on the consumption of public goods. The benefits derive from the additional borrowing from the IMF (at a lower interest rate) and/or through a "catalytic effect" on private loans, which facilitates consumption smoothing over time. Simulations of the dynamic model in two institutional environments -- with and without the IMF -- are compared. Results indicate that when conditionality forces the country to save more, at a cost that does not prevent it from joining an IMF program, the resulting lower probability of default can induce private lenders to relax their borrowing constraints. Based on a calibration of the model for the Brazilian economy, the overall welfare gains associated with IMF programs are relatively small.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofcanada.ca/en/res/wp/2007/wp07-22.pdf
File Format:
File Function:
Download Restriction: no

Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 07-22.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 41 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bca:bocawp:07-22

Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8899
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/

Order Information:
Postal: Publications Distribution, Bank of Canada, 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Email:
Web: http://www.bank-banque-canada.ca/en/publication/pub_res.html

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: International topics;

Other versions of this item:

Find related papers by JEL classification:
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
  2. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," NBER Working Papers 10387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Ashoka Mody & Diego Saravia, 2003. "Catalyzing Capital Flows: Do IMF-Supported Programs Work as Commitment Devices?," IMF Working Papers 03/100, International Monetary Fund. [Downloadable!]
  4. Bird, Graham, 1996. "Borrowing from the IMF: The policy implications of recent empirical research," World Development, Elsevier, vol. 24(11), pages 1753-1760, November. [Downloadable!] (restricted)
  5. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September. [Downloadable!] (restricted)
  6. Aguiar, Mark & Gopinath, Gita, 2006. "Defaultable debt, interest rates and the current account," Journal of International Economics, Elsevier, vol. 69(1), pages 64-83, June. [Downloadable!] (restricted)
    Other versions:
  7. Julio A. Santaella, 1995. "Four Decades of Fund Arrangements - Macroeconomic Stylized Facts Before the Adjustment Programs," IMF Working Papers 95/74, International Monetary Fund.
  8. Nadeem Ul Haque & Mohsin S. Khan, 1998. "Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
  9. Michael Hutchison, 2001. "A cure worse than the disease? currency crises and the output costs of IMF-supported stabilization programs," Pacific Basin Working Paper Series 01-02, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  10. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181. [Downloadable!] (restricted)
  11. Joyce, Joseph P., 1992. "The economic characteristics of IMF program countries," Economics Letters, Elsevier, vol. 38(2), pages 237-242, February. [Downloadable!] (restricted)
  12. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August. [Downloadable!] (restricted)
  13. Bird, Graham & Hussain, Mumtaz & Joyce, Joseph P., 2004. "Many happy returns? Recidivism and the IMF," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 231-251, March. [Downloadable!] (restricted)
  14. Carlos de Resende, 2006. "Endogenous Borrowing Constraints and Consumption Volatility in a Small Open Economy," Working Papers 06-37, Bank of Canada. [Downloadable!]
  15. Sebastian Edwards & Julio Santaella, 1993. "Devaluation Controversies in the Developing Countries: Lessons from the Bretton Woods Era," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 405-460 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  16. Hafedh Bouakez & Nooman Rebei, 2003. "Why Does Private Consumption Rise After a Government Spending Shock?," Working Papers 03-43, Bank of Canada. [Downloadable!]
    Other versions:
  17. Easterly, William, 2005. "What did structural adjustment adjust?: The association of policies and growth with repeated IMF and World Bank adjustment loans," Journal of Development Economics, Elsevier, vol. 76(1), pages 1-22, February. [Downloadable!] (restricted)
    Other versions:
  18. Dicks-Mireaux, Louis & Mecagni, Mauro & Schadler, Susan, 2000. "Evaluating the effect of IMF lending to low-income countries," Journal of Development Economics, Elsevier, vol. 61(2), pages 495-526, April. [Downloadable!] (restricted)
  19. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March. [Downloadable!] (restricted)
  20. Lucas, Deborah J., 1994. "Asset pricing with undiversifiable income risk and short sales constraints: Deepening the equity premium puzzle," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 325-341, December. [Downloadable!] (restricted)
  21. Aiyagari, S. Rao & Gertler, Mark, 1991. "Asset returns with transactions costs and uninsured individual risk," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 311-331, June. [Downloadable!] (restricted)
    Other versions:
  22. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 865-88, October. [Downloadable!] (restricted)
    Other versions:
  23. Fischer, Stanley, 1997. "Applied Economics in Action: IMF Programs," American Economic Review, American Economic Association, vol. 87(2), pages 23-27, May. [Downloadable!] (restricted)
  24. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  25. Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004. "Keeping Capital Flowing: The Role of the IMF," International Finance, Blackwell Publishing, vol. 7(3), pages 421-450, December. [Downloadable!] (restricted)
    Other versions:
  26. Carlo Cottarelli & Curzio Giannini, 2002. "Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending," IMF Working Papers 02/193, International Monetary Fund. [Downloadable!]
  27. Conners & Thomas A., 1979. "The apparent effects of recent IMF stabilization programs," International Finance Discussion Papers 135, Board of Governors of the Federal Reserve System (U.S.).
  28. Graham Bird & Dane Rowlands, 2002. "Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?," Oxford Development Studies, Taylor and Francis Journals, vol. 30(3), pages 229-249. [Downloadable!] (restricted)
  29. Cristina Arellano, 2005. "Default Risk, the Real Exchange Rate and Income Fluctuations in Emerging Economies," 2005 Meeting Papers 516, Society for Economic Dynamics. [Downloadable!]
  30. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September. [Downloadable!] (restricted)
    Other versions:
  31. Cole, Harold L & Kehoe, Patrick J, 1998. "Models of Sovereign Debt: Partial versus General Reputations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 55-70, February.
  32. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October. [Downloadable!] (restricted)
    Other versions:
  33. Corsetti, Giancarlo & Guimarães, Bernardo & Roubini, Nouriel, 2004. "International Lending of Last Resort and Moral Hazard: A Model of the IMF's Catalytic Finance," CEPR Discussion Papers 4383, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  34. Edwards, Sebastian, 1989. "The international monetary fund and the developing countries: A critical evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 7-68, January. [Downloadable!] (restricted)
  35. Ashoka Mody & Barry J. Eichengreen & Kenneth Kletzer, 2005. "The IMF in a World of Private Capital Markets," IMF Working Papers 05/84, International Monetary Fund. [Downloadable!]
    Other versions:
  36. Graham Bird & Dane Rowlands, 1997. "The Catalytic Effect of Lending by the International Financial Institutions," The World Economy, Blackwell Publishing, vol. 20(7), pages 967-991, November. [Downloadable!] (restricted)
  37. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April. [Downloadable!] (restricted)
    Other versions:
  38. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June. [Downloadable!] (restricted)
  39. Michael Mussa & Miguel A. Savastano, 1999. "The IMF Approach to Economic Stabilization," IMF Working Papers 99/104, International Monetary Fund.
  40. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier Jeanne & Jonathan David Ostry & Jeromin Zettelmeyer, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 08/236, International Monetary Fund. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc data is maintained by each archive holder on its own website. Nothing is held centrally.

This page was last updated on 2009-11-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.