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Intervention Versus Regulation: The Role of the IMF in Crisis Prevention and Management


  • E. V. K. FitzGerald

    (The Jerome Levy Economics Institute)


In this working paper, E. V. K. FitzGerald, of the Finance and Trade Policy Research Center at the Oxford University, investigates roles that the International Monetary Fund (IMF) might play given its mandate to provide institutional support for a global capital market that can promote trade and investment and given current worldwide economic instabilities, such as highly volatile exchange rates and financial and macroeconomic instabilities experienced in nonindustrialized countries. The experience of steady growth and price stability under the Bretton Woods system is often cited in support of a return to a managed fixed- rate system. FitzGerald contends, however, that although exchange rate instability might be related to the major financial crises of the past 20 years, such instability is not the source of financial crises; rather, factors such as the worldwide integration of financial markets and the development of heterogeneous financial instruments have created new sources of instability. In the new worldwide financial system exchange rates function as asset prices (that is, they reflect international capital flows) as well to regulate trade flows. Current account balances are, then, more likely a function of internal imbalances than of trade imbalances. Moreover, because interest rates reflect the desire to hold a given stock of bonds, their fluctuation does not cause international capital markets to clear (that is, cause saving to equal investment on a global scale).

Suggested Citation

  • E. V. K. FitzGerald, 1998. "Intervention Versus Regulation: The Role of the IMF in Crisis Prevention and Management," Macroeconomics 9807006, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9807006 Note: Type of Document - Acrobat PDF; prepared on IBM PC - PC; to print on PostScript; pages: 33; figures: included

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    References listed on IDEAS

    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    3. José Darío Uribe, 1995. "Flujos de Capital en Colombia: 1978-1994," BORRADORES DE ECONOMIA 002733, BANCO DE LA REPÚBLICA.
    4. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August.
    5. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
    6. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-153, February.
    7. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-467, May/June.
    8. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    9. Ffrench-Davis, Ricardo, 1990. "Debt-Equity Swaps in Chile," Cambridge Journal of Economics, Oxford University Press, vol. 14(1), pages 109-126, March.
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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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