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Sudden Stops and IMF-Supported Programs

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  • Barry J. Eichengreen
  • Poonam Gupta
  • Ashoka Mody

Abstract

Could a high-access, quick-disbursing "insurance facility" in the IMF help to reduce the incidence of sharp interruptions in capital flows ("sudden stops")? We contribute to the debate around this question by analyzing the impact of conventional IMF-supported programs on the incidence of sudden stops. Correcting for the non-random assignment of programs, we find that sudden stops are fewer and generally less severe when an IMF arrangement exists and that this form of "insurance" works best for countries with strong fundamentals. In contrast there is no evidence that a Fund-supported program attenuates the output effects of capital account reversals if these nonetheless occur.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/101.

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Length: 53
Date of creation: 01 Apr 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/101

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Keywords: Capital flows; current account; currency crises; current account balance; capital inflows; debt service; inflation rate; capital markets; moral hazard; balance of payments; domestic credit; international capital markets; capital formation; current account deficit; capital outflow; currency crisis; capital outflows; international capital; short-term debt; capital flow; capital mobility; capital market; net capital; exogenous shocks; net foreign debt; central bank; external debt; ratio of debt; commodity prices; liquidity crisis; capital movements; government bonds; domestic borrowing; foreign capital; current account deficits; debt sustainability; real effective exchange rate; capital flow reversals; capital controls; private capital markets; crisis country; current account surplus; capital account crises; private investors; loan disbursements; risk aversion; external shocks; private capital; debt ratios; external payment; debt rescheduling; public sector debt; short-term capital; net capital outflow; call options; international lending; foreign aid; crisis prevention; private financial institutions; debt service to exports; current account adjustment; ratio of debt service to exports; international capital market; amount of debt; liquidity crises; balance of payment; net capital outflows; currency debt; debt crisis; currency composition; debt problems; commercial credits; domestic growth; debt servicing; crisis countries; global liquidity;

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References

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