IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this book chapter or follow this series

A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs

In: Managing Currency Crises in Emerging Markets

  • Michael Hutchison

This paper investigates the output effects of IMF-supported stabilization programs, especially those introduced at the time of a severe balance of payments/currency crisis. Using a panel data set over the 1975-97 period and covering 67 developing and emerging-market economies (with 461 IMF stabilization programs and 160 currency crises), we find that currency crises - even after controlling for macroeconomic developments, political and regional factors - significantly reduce output growth for 1-2 years. Output growth is also lower (0.7 percentage points annually) during IMF-stabilization programs, but it appears coinciding with recent balance of payments or currency crises do not appear to further damage short-run growth prospects. Countries participating in IMF programs significantly reduce domestic credit growth, but no effect is found on budget policy. Applying this model to the collapse of output in East Asia following the 1997 crisis, we find that the unexpected (forecast error) collapse of output in Malaysia - where an IMF-program was not followed - was similar in magnitude to those countries adopting IMF programs (Indonesia, Korea, Philippines and Thailand).

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. 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.nber.org/chapters/c9655.pdf
Download Restriction: no

as
in new window

This chapter was published in:
  • Michael P. Dooley & Jeffrey A. Frankel, 2003. "Managing Currency Crises in Emerging Markets," NBER Books, National Bureau of Economic Research, Inc, number dool03-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9655.
    Handle: RePEc:nbr:nberch:9655
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
    Email:


    More information through EDIRC

    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.:

    as in new window
    1. 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.).
    2. 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.
    3. Julio A. Santaella, 1996. "Stylized Facts before IMF-Supported Macroeconomic Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 502-544, September.
    4. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc.
    5. Glick, R. & Hutchison, M., 2000. "Capital Controls and Exchange Rate Instability in Developing Countries," Papers pb00-05, Economisch Institut voor het Midden en Kleinbedrijf-.
    6. Dreher, Axel & Vaubel, Roland, 2000. "Does the IMF cause moral hazard and political business cycles? : Evidence from panel data," Discussion Papers 598, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    7. Joseph P. Joyce, 2001. "Time present and time past: a duration analysis of IMF program spells," Working Papers 01-2, Federal Reserve Bank of Boston.
    8. Ethan Kaplan & Dani Rodrik, 2001. "Did the Malaysian Capital Controls Work?," NBER Working Papers 8142, National Bureau of Economic Research, Inc.
    9. Bordo, Michael D. & Schwartz, Anna J., 2000. "Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 81-167, December.
    10. Pastor, Manuel Jr., 1987. "The effects of IMF programs in the Third World: Debate and evidence from Latin America," World Development, Elsevier, vol. 15(2), pages 249-262, February.
    11. Reuven Glick & Ramon Moreno & Mark Spiegel, 2001. "Financial crises in emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar.23.
    12. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
    13. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    14. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
    15. Reuven Glick & Michael M. Hutchison, . "Banking and Currency Crises: How Common Are Twins?," EPRU Working Paper Series 99-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    16. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    17. W. A. Beveridge & Margaret R. Kelly, 1980. "Fiscal Content of Financial Programs Supported by Stand-by Arrangements in the Upper Credit Tranches, 1969-78 (Objectifs de finances publiques des programmes financiers soutenus par des accords de con," IMF Staff Papers, Palgrave Macmillan, vol. 27(2), pages 205-249, June.
    18. Michael D. Bordo & Harold James, 2000. "The International Monetary Fund: Its Present Role in Historical Perspective," NBER Working Papers 7724, National Bureau of Economic Research, Inc.
    19. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
    20. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
    21. 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.
    22. 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.
    23. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
    24. Dooley, Michael P., 2000. "International financial architecture and strategic default: can financial crises be less painful?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 361-377, December.
    25. Meltzer, Allan H., 1989. "IMF policy advice, market volatility, commodity price rules, and other essays," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 1-6, January.
    26. 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.
    27. Mohsin S. Khan, 1990. "The Macroeconomic Effects of Fund-Supported Adjustment Programs," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 195-231, June.
    28. Morris Goldstein & Peter Montiel, 1986. "Evaluating Fund Stabilization Programs with Multicountry Data: Some Methodological Pitfalls (Evaluation des programmes de stabilisation du Fonds à partir de données sur divers pays: quelques écueils," IMF Staff Papers, Palgrave Macmillan, vol. 33(2), pages 304-344, June.
    29. Bird, Graham, 1996. "The International Monetary Fund and developing countries: a review of the evidence and policy options," International Organization, Cambridge University Press, vol. 50(03), pages 477-511, June.
    30. Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:9655. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.