## Effect of IMF Structural Adjustment Programs on Expectations: The Case of Transition Economies

_IMF Working Papers, November 1, 2007_

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## Bibliographic details
- Authors: Patrick A. Imam
- Published: November 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451868241.001

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### Summary and main findings
- Analysis uses survey data from the Central and Eastern Eurobarometer poll, an annual general public survey monitoring the evolution of public opinion from 1990 to 1997.
- Previous studies relied on indirect measures (capital flows, yield spreads) to assess IMF program effects on expectations; this study uses direct survey measures of agent expectations.
- Using a multinomial probit model, the paper finds:
  - IMF loans appear to have a strong effect on agent expectations in the early years, through the inflow of real money, and through the signaling effect.
  - During periods of collapsing growth, IMF programs appear to reinforce underlying expectations for the future:
    - Associated with positive expectations for agents with an optimistic outlook.
    - Associated with negative expectations for agents with a negative outlook.
  - Once recovery is underway and economic uncertainty diminishes, IMF programs cease to have a statistically significant effect on the expectations of economic agents.
- Conclusion: IMF programs have the biggest impact on expectations during periods of great uncertainty and less impact when countries face minor shocks.

### Methodology
- Data source: Central and Eastern Eurobarometer poll (annual general public survey) covering 1990 to 1997.
- Econometric approach: multinomial probit model.
- Comparative note: contrasts with prior work that used indirect indicators (capital flows, yield spreads) to infer expectations.

### Policy implications and interpretation
- IMF lending and program involvement can influence public expectations via two channels:
  - Liquidity/inflow channel: the inflow of real money from loans.
  - Signaling channel: the presence of IMF support signals commitment or policy intent.
- Timing matters:
  - Programs are most impactful on expectations during acute downturns and high uncertainty.
  - During recoveries with reduced uncertainty, IMF program presence does not significantly alter expectations.
- Implication for program design: consider the informational and liquidity roles of IMF support especially in early, high-uncertainty phases of crises.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/effect-of-imf-structural-adjustment-programs-on-expectations-the-case-of-transition-economies-21449_