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Once Bitten: The Effect of IMF Programs on Subsequent Reserve Behavior

  • Graham Bird
  • Alex Mandilaras

Traditional models have encountered problems in explaining the ac- cumulation of international reserves, particularly in Asia, in the period since the late 1990s. One suggestion has been that countries have sought to self insure against future crises, either because of a perceived increase in the cost of crises or because of the perceived conditionality costs of using IMF credits. This paper others an empirical investigation of these ideas, disaggregating across regions and across IMF facilities. Using both static and dynamic regression techniques we find that IMF pro- grams have had a significant positive effect on subsequent reserve accu- mulation, allowing for other determinants, and that this effect endures over time. We also find that the effect differs between Latin America and Asia, and that it is not simply a phenomenon that is associated with the Asian crisis of 1997/98. The paper goes on to discuss the implications for the design of policy and for the reform of the IMF.

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File URL: http://hdl.handle.net/10.1111/j.1467-9361.2011.00607.x
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Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 15 (2011)
Issue (Month): 2 (05)
Pages: 264-278

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Handle: RePEc:bla:rdevec:v:15:y:2011:i:2:p:264-278
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  1. Joshua Aizenman & Nancy Marion, 2002. "The high demand for international reserves in the Far East: what's going on?," Pacific Basin Working Paper Series 2002-08, Federal Reserve Bank of San Francisco.
  2. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc.
  3. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
  4. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, 06.
  5. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," NBER Working Papers 14826, National Bureau of Economic Research, Inc.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  7. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
  8. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
  9. 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.
  10. Graham Bird, . "The IMF: A Bird's Eye View of its Role and Operations," School of Economics Discussion Papers 0407, School of Economics, University of Surrey, revised Jan 2007.
  11. Graham Bird, 2009. "Reforming IMF Conditionality," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 10(3), pages 81-104, July.
  12. Graham Bird & Alex Mandilaras, 2007. "Revisiting Mrs. Machlup's Wardrobe: The Accumulation of International Reserves, 1992-2001," School of Economics Discussion Papers 1207, School of Economics, University of Surrey.
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