IMF-Supported Programs and Crisis Prevention; An Analytical Framework
This paper presents an analytical framework for considering the role of IMF-supported programs in preventing crises, particularly capital account crises. The model builds upon the global games framework to establish a unique relationship between the crisis probability and the parameters of the program, which is assumed to be negotiated between the IMF and the member country, taking explicit account of each party's interests. In the model, from the perspective of the borrowing country, IMF financing and policy adjustment are (perfect) substitutes inasmuch as they both contribute to the country's liquidity and thus reduce the likelihood of a crisis. In equilibrium, however, IMF financing promotes stronger policies, implying that financing and adjustment are strong complements in crisis prevention. Conditionality plays a crucial role in sustaining the program, providing mutual assurances-to the member country that, if it undertakes the agreed policies, financing will indeed be forthcoming, and to the IMF that the country will implement the agreed policies as the IMF disburses its resources. The model helps explain how liquidity crises may come about, how IMF support can reduce the likelihood of a crisis by providing liquidity and sustaining stronger policies, and why the observed mix between financing and adjustment may vary across programs.
|Date of creation:||01 Jun 2006|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
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.:
- Adrian Penalver, 2004. "How can the IMF catalyse private capital flows? A model," Bank of England working papers 215, Bank of England.
- Fischer, Stanley, 1997. "Applied Economics in Action: IMF Programs," American Economic Review, American Economic Association, vol. 87(2), pages 23-27, May.
- Charalambos Christofides & Atish R. Ghosh & Uma Ramakrishnan & Alun H. Thomas & Laura Papi & Juan Zalduendo & Jun I Kim, 2005. "The Design of IMF-Supported Programs," IMF Occasional Papers 241, International Monetary Fund.
- Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
NBER Working Papers
9908, National Bureau of Economic Research, Inc.
- 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.
- Jeffrey A. Frankel, 2005.
"Contractionary Currency Crashes in Developing Countries,"
NBER Working Papers
11508, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey, 2005. "Contractionary Currency Crashes In Developing Countries," Working Paper Series rwp05-017, Harvard University, John F. Kennedy School of Government.
- Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004.
"Keeping Capital Flowing: The Role of the IMF,"
Wiley Blackwell, vol. 7(3), pages 421-450, December.
- Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004. "Keeping Capital Flowing: The Role of the IMF," NBER Working Papers 10834, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Ashoka Mody & Nienke Oomes, 2004. "Keeping Capital Flowing; The Role of the IMF," IMF Working Papers 04/197, International Monetary Fund.
- Curzio Giannini & Carlo Cottarelli, 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.
- Stephen Morris & Hyun Song Shin, 2003.
"Catalytic Finance: When Does It Work?,"
Cowles Foundation Discussion Papers
1400, Cowles Foundation for Research in Economics, Yale University.
- repec:rus:hseeco:123922 is not listed on IDEAS
- J. Zettelmeyer, 2000. "Can Official Crisis Lending be Counterproductive in the Short Run?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 29(1), pages 13-29, 02.
- Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages 111-125, March.
- Ales Bulir & Marianne Schulze-Gattas & Atish R. Ghosh & Alex Mourmouras & A. Javier Hamann & Timothy D. Lane, 2002. "IMF-Supported Programs in Capital Account Crises; Design and Experience," IMF Occasional Papers 210, International Monetary Fund.
- VJeffrey A. Frankel, 2005. "Mundell-Fleming Lecture: Contractionary Currency Crashes in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 149-192, September.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:06/156. 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: (Jim Beardow)or (Hassan Zaidi)
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.