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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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  • Axel Dreher
  • Stefanie Walter

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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  • Axel Dreher & Stefanie Walter, 2008. "Does the IMF Help or Hurt? The Effect of IMF Programs on the Likelihood and Outcome of Currency Crises," KOF Working papers 08-186, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:08-186
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    File URL: http://dx.doi.org/10.3929/ethz-a-005510843
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    Cited by:

    1. Luca Papi & Andrea F Presbitero & Alberto Zazzaro, 2015. "IMF Lending and Banking Crises," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 644-691, November.
    2. repec:wsi:jicepx:v:08:y:2017:i:01:n:s1793993317500041 is not listed on IDEAS
    3. 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.
    4. Oberdabernig, Doris A., 2013. "Revisiting the Effects of IMF Programs on Poverty and Inequality," World Development, Elsevier, vol. 46(C), pages 113-142.
    5. Sarah Al Doyaili & Leo Wangler, 2013. "International climate policy: does it matter? An empirical assessment," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 2(3), pages 288-302, November.
    6. Doris A. Oberdabernig, 2018. "Determinants of IMF lending: How different is Sub-Saharan Africa?," Economics Bulletin, AccessEcon, vol. 38(1), pages 136-145.
    7. 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.
    8. Stubbs, Thomas & Kentikelenis, Alexander & Stuckler, David & McKee, Martin & King, Lawrence, 2017. "The impact of IMF conditionality on government health expenditure: A cross-national analysis of 16 West African nations," Social Science & Medicine, Elsevier, vol. 174(C), pages 220-227.
    9. Bernhard Reinsberg & Alexander Kentikelenis & Thomas Stubbs & Lawrence King & Centre for Business Research, 2018. "The World System & the Hollowing-out of State Capacity: How Structural Adjustment Programs Impact Bureaucratic Quality in Developing Countries," Working Papers wp503, Centre for Business Research, University of Cambridge.
    10. Pierre-Guillaume Méon & Geoffrey Minne, 2014. "Mark my Words: Information and the Fear of Declaring one’s Exchange Rate Regime," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 107, pages 244-261, March.
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    16. Li, Larry & Sy, Malick & McMurray, Adela, 2015. "Insights into the IMF bailout debate: A review and research agenda," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 891-914.
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    More about this item

    Keywords

    IMF programs; Growth; Compliance; Conditionality;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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