From Crisis to IMF-Supported Program: Does democracy impede the speed required by financial markets?
IMF Working Papers, December 1, 2008
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Bibliographic details
- Authors: Ashoka Mody, Diego Saravia
- Published: December 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871340.001
Summary
- Research question: Has the spread of democracy and political participation impeded the need for speed required by financial markets and the elevated threat of contagion across borders?
- Core finding: The time span between the onset of a financial crisis and the agreement on an IMF-supported adjustment program appears to have decreased over time.
- Additional summary points:
- The time from a crisis to the approval of a program has been smaller the more serious the crisis.
- Responsiveness to a widening range of financial vulnerabilities has increased with growing financial integration.
- Democracies, particularly those with checks and balances, have been sensitive to time pressures.
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Key findings and empirical results
- Time span between crisis onset and IMF program approval:
- Decreased over time (trend described qualitatively in the paper).
- Shorter for more serious crises.
- Interaction with financial integration:
- Responsiveness to wider financial vulnerabilities increased with growing financial integration.
- Political regime effects:
- Democracies — especially those with checks and balances — exhibit sensitivity to time pressures when moving from crisis onset to program approval.
Methodology and technical notes (as described)
- Paper type: IMF Working Paper.
- Authors: Ashoka Mody, Diego Saravia.
- Date: December 1, 2008.
- Pages: 33.
- Series: Working Paper No. 2008/276.
- Issue: 276.
- Volume: 2008.
- DOI: https://doi.org/10.5089/9781451871340.001.
- Stock No: WPIEA2008276.
- ISBN: 9781451871340.
- ISSN: 1018-5941.
- Subjects listed: Depreciation, Exchange rates, Financial crises, Oil prices, Sudden stops.
- Keywords listed: current account, dummy variable, first period, growth rate, Poisson distribution, WP.
Policy implications and interpretation
- Faster IMF program approvals are associated with greater crisis severity and higher financial integration, suggesting that international market pressures and cross-border contagion risks can accelerate policy responses.
- Democracies with institutional checks and balances respond to time pressures, implying that political structures do not necessarily impede rapid engagement with the IMF in the face of acute financial stress.
Source: Ashoka Mody and Diego Saravia, "From Crisis to IMF-Supported Program: Does democracy impede the speed required by financial markets?", IMF Working Papers 2008, 276 (December 1, 2008).