[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdps/182020.html
   My bibliography  Save this paper

Doing more with less: The catalytic function of IMF lending and the role of program size

Author

Listed:
  • Krahnke, Tobias
Abstract
Financial assistance provided by the International Monetary Fund (IMF) is supposed to unlock other financing, acting as a catalyst for private capital flows. The empirical evidence of the presence of such a catalytic effect has, however, been mixed. This paper shows that a possible explanation for the rather inconclusive empirical evidence to date is the neglect of the size of an IMF program. Applying a novel identification strategy to account for endogenous selection into (large) adjustment programs, and using a comprehensive data set spanning the years 1990-2018, we show that the catalytic effect of IMF financial assistance is weakened - and potentially reversed - if the size of a program exceeds a certain level. We argue that large IMF financial assistance coupled with the IMF's preferred creditor status can lead to a crowding-out of private investors by increasing their loss in the event of default. Our findings add to the debate on the optimal size of Fund-supported programs and can also inform the broader policy discussions on the adequacy of IMF resources.

Suggested Citation

  • Krahnke, Tobias, 2020. "Doing more with less: The catalytic function of IMF lending and the role of program size," Discussion Papers 18/2020, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:182020
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/215804/1/1694346501.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Graham Bird & Dane Rowlands, 2008. "Catalysing private capital flows and IMF programs: some remaining questions," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 11(1), pages 37-43.
    3. Cordella, Tito & Powell, Andrew, 2021. "Preferred and non-preferred creditors," Journal of International Economics, Elsevier, vol. 132(C).
    4. Christian,Paul J. & Barrett,Christopher B., 2017. "Revisiting the effect of food aid on conflict : a methodological caution," Policy Research Working Paper Series 8171, The World Bank.
    5. Graham Bird & Dane Rowlands, 2001. "IMF lending: how is it affected by economic, political and institutional factors?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(3), pages 243-270.
    6. Axel Dreher & Katharina Michaelowa, 2008. "The political economy of international organizations," The Review of International Organizations, Springer, vol. 3(4), pages 331-334, December.
    7. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2013. "Gross capital flows: Dynamics and crises," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 113-133.
    8. 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.
    9. Mehmet C. Arabaci & Sencer Ecer, 2014. "The International Monetary Fund (IMF) and the Catalytic Effect: Do IMF Agreements Improve Access of Emerging Economies to International Financial Markets?," The World Economy, Wiley Blackwell, vol. 37(11), pages 1575-1588, November.
    10. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
    11. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
    12. Michael Breen & Patrick J. W. Egan, 2019. "The Catalytic Effect of IMF Lending: Evidence from Sectoral FDI Data," International Interactions, Taylor & Francis Journals, vol. 45(3), pages 447-473, May.
    13. Patrick Conway, 2007. "The Revolving Door: Duration and Recidivism in IMF Programs," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 205-220, May.
    14. Roberto Benelli, 2003. "Do IMF-Supported Programs Boost Private Capital Inflows? the Role of Program Size and Policy Adjustment," IMF Working Papers 2003/231, International Monetary Fund.
    15. Hippolyte W. Balima & Mr. Amadou N Sy, 2019. "The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs," IMF Working Papers 2019/002, International Monetary Fund.
    16. Graham Bird & Dane Rowlands, 2008. "Catalysing private capital flows and IMF programs: some remaining questions," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 11(1), pages 37-43.
    17. Chapman, Terrence & Fang, Songying & Li, Xin & Stone, Randall W., 2017. "Mixed Signals: IMF Lending and Capital Markets," British Journal of Political Science, Cambridge University Press, vol. 47(2), pages 329-349, April.
    18. Graham Bird & Dane Rowlands, 2002. "Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?," Oxford Development Studies, Taylor & Francis Journals, vol. 30(3), pages 229-249.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jesus Fernandez-Villaverde & Daniel Sanches & Linda Schilling & Harald Uhlig, 2021. "Central Bank Digital Currency: Central Banking For All?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 225-242, July.
    2. Committeri, Marco & Brüggemann, Axel & Kosterink, Patrick & Reininger, Thomas & Stevens, Luc & Vonessen, Benjamin & Zaghini, Andrea & Garrido, Isabel & Van Meensel, Lena & Strašuna, Lija & Tiililä, Ne, 2022. "The role of the IMF in addressing climate change risks," Occasional Paper Series 309, European Central Bank.
    3. Bomprezzi, Pietro & Marchesi, Silvia, 2023. "A firm level approach on the effects of IMF programs," Journal of International Money and Finance, Elsevier, vol. 132(C).
    4. Claudia Maurini & Alessandro Schiavone, 2021. "The catalytic role of IMF programs," Temi di discussione (Economic working papers) 1331, Bank of Italy, Economic Research and International Relations Area.
    5. Jost, Thomas & Seitz, Franz, 2021. "Designing a European Monetary Fund: What role for the IMF?," IMFS Working Paper Series 151, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    6. Juan Pablo Bohoslavsky & Francisco Cantamutto & Laura Clérico, 2022. "IMF’s Surcharges as a Threat to the Right to Development," Development, Palgrave Macmillan;Society for International Deveopment, vol. 65(2), pages 194-202, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kai Gehring & Valentin F. Lang, 2018. "Stigma or Cushion? IMF Programs and Sovereign Creditworthiness," CESifo Working Paper Series 7339, CESifo.
    2. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    3. Graham Bird & Dane Rowlands, 2007. "The Analysis of Catalysis: IMF Programs and Private Capital Flows," School of Economics Discussion Papers 0107, School of Economics, University of Surrey.
    4. 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.
    5. Essers, Dennis & Ide, Stefaan, 2019. "The IMF and precautionary lending: An empirical evaluation of the selectivity and effectiveness of the Flexible Credit Line," Journal of International Money and Finance, Elsevier, vol. 92(C), pages 25-61.
    6. Chungshik Moon & Byungwon Woo, 2022. "Curse of friendship: IMF programme, friendship with the United States and foreign direct investment," The World Economy, Wiley Blackwell, vol. 45(7), pages 2188-2221, July.
    7. Committeri, Marco & L´Hotellerie-Fallois, Pilar & Algarra, Monica & Balteanu, Irina & Eijking, Carlijn & Estefanía, Julia & Gallego, Sonsoles & Garelli, Serena & Gibson, Heather & Heinbuecher, Robert , 2019. "Conditionality and design of IMF-supported programmes," Occasional Paper Series 235, European Central Bank.
    8. Claudia Maurini & Alessandro Schiavone, 2021. "The catalytic role of IMF programs," Temi di discussione (Economic working papers) 1331, Bank of Italy, Economic Research and International Relations Area.
    9. Christoph Moser & Jan-Egbert Sturm, 2011. "Explaining IMF lending decisions after the Cold War," The Review of International Organizations, Springer, vol. 6(3), pages 307-340, September.
    10. Kern, Andreas & Reinsberg, Bernhard & Rau-Göhring, Matthias, 2019. "IMF conditionality and central bank independence," European Journal of Political Economy, Elsevier, vol. 59(C), pages 212-229.
    11. Hippolyte Balima & Amadou Sy, 2021. "IMF-Supported Programs and Sovereign Debt Crises," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(2), pages 427-465, June.
    12. Bomprezzi, Pietro & Marchesi, Silvia, 2023. "A firm level approach on the effects of IMF programs," Journal of International Money and Finance, Elsevier, vol. 132(C).
    13. Scheubel, Beatrice & Tafuro, Andrea & Vonessen, Benjamin, 2018. "Stigma? What stigma? A contribution to the debate on financial market effects of IMF lending," Working Paper Series 2198, European Central Bank.
    14. Salim Chahine & Ugo Panizza & Guilherme Suedekum, 2024. "IMF programs and borrowing costs: does size matter?," IHEID Working Papers 06-2024, Economics Section, The Graduate Institute of International Studies.
    15. Marijana Andrijic & Tajana Barbic, 2018. "Trick or Treat? The Effect of IMF Programmes on Mobilising FDI in CESEE Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(3), pages 245-267, July.
    16. 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.
    17. Mr. Ali J Al-Sadiq, 2015. "The Impact of IMF-Supported Programs on FDI in Low-income Countries," IMF Working Papers 2015/157, International Monetary Fund.
    18. Graham Bird, 2007. "The Imf: A Bird'S Eye View Of Its Role And Operations," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 683-745, September.
    19. Martin Steinwand & Randall Stone, 2008. "The International Monetary Fund: A review of the recent evidence," The Review of International Organizations, Springer, vol. 3(2), pages 123-149, June.
    20. Bal Gündüz, Yasemin, 2016. "The Economic Impact of Short-term IMF Engagement in Low-Income Countries," World Development, Elsevier, vol. 87(C), pages 30-49.

    More about this item

    Keywords

    International Monetary Fund; catalysis; capital flows; financial crises;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:182020. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/dbbgvde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.