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Does the IMF Help or Hurt? The Effect of IMF programs on the likelihood and outcome of currency crises

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Abstract

Using panel data for 68 countries over the period 1975-2002 this paper examines how IMF programs, disbursed loans, and compliance with conditionality affect the risk of currency crises and the outcome of such crises. Specifically, we investigate whether countries with previous IMF intervention are more likely to experience currency crises. In a second step, we analyze the IMF’s impact on a country’s decision to adjust the exchange rate, once a crisis occurred. We find that IMF involvement reduces the probability of a crisis. Once in a crisis, IMF programs significantly increase the probability that the authorities devalue the exchange rate. The amount of loans and compliance with conditionality have no impact. Our results suggest that the IMF – contrary to the Fund’s critics – does indeed fulfill its functions of promoting exchange rate stability and helping its members to correct macroeconomic imbalances.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-186.

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Length: 39 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:kof:wpskof:08-186

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Keywords: IMF programs; growth; compliance; conditionality;

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Cited by:
  1. Raquel Nadal & Raphael Martins, 2011. "Efeitos demudanças liberalizantes da conta de capital sobre ocrescimento: uma abordagem de avaliação depolíticas públicas," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 119, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. Aichele, Rahel & Felbermayr, Gabriel, 2012. "Kyoto and the carbon footprint of nations," Munich Reprints in Economics 20163, University of Munich, Department of Economics.
  3. Méon, Pierre-Guillaume & Minne, Geoffrey, 2014. "Mark my words: Information and the fear of declaring an exchange rate regime," Journal of Development Economics, Elsevier, vol. 107(C), pages 244-261.
  4. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics 201026, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  5. Doris A. Oberdabernig, 2012. "Revisiting the Effects of IMF Programs on Poverty and Inequality," Department of Economics Working Papers wuwp144, Vienna University of Economics, Department of Economics.
  6. Andrea F. Presbitero & Alberto Zazzaro, 2010. "IMF Lending in Low- and Middle-Income Countries in the Wake of the Global Crisis," Development Working Papers 305, Centro Studi Luca d\'Agliano, University of Milano.
  7. Luca Papi & Andrea Filippo Presbitero & Alberto Zazzaro, 2013. "IMF Lending and Banking Crises," Mo.Fi.R. Working Papers 80, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  8. Pierre-Guillaume Méon & Geoffrey Minne, 2014. "Mark my Words: Information and the Fear of Declaring one’s Exchange Rate Regime," ULB Institutional Repository 2013/163527, ULB -- Universite Libre de Bruxelles.
  9. Presbitero, Andrea F. & Zazzaro, Alberto, 2012. "IMF Lending in Times of Crisis: Political Influences and Crisis Prevention," World Development, Elsevier, vol. 40(10), pages 1944-1969.

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