The Role of IMF Support in Crisis Prevention
IMF Working Papers, March 1, 2006
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Bibliographic details
- Authors: Uma Ramakrishnan, Juan Zalduendo
- Published: March 1, 2006
- Series: IMF Working Papers
Summary of purpose and scope
- Examines the role of IMF-supported programs in crisis prevention, specifically whether, conditional on an episode of intense market pressures, IMF financial support helps prevent a capital account crisis from developing and, if so, through what channels.
- Distinguishes between the seal of approval inherent in IMF support and its financing.
- Evaluates the interaction of IMF support with economic policies.
- Assesses whether IMF financing has a different impact on the likelihood of a crisis than other forms of liquidity.
Main findings
- IMF financing helps prevent crises through the liquidity provided (i.e., money matters).
- The effect of IMF financing on crisis prevention holds even after controlling for (gross) foreign exchange reserves, implying that:
- Stronger policies and the seal of approval under an IMF-supported program must also play a role.
- IMF financing as a crisis prevention tool is most effective for an intermediate range of economic fundamentals.
Analytical focus and channels assessed
- Seal of approval versus financing: the paper separates reputational/approval effects from pure funding effects.
- Interaction with economic policies: evaluates how policy strength under IMF programs influences crisis prevention effectiveness.
- Comparison of liquidity sources: assesses whether IMF financing differs from other forms of liquidity in reducing crisis likelihood.
Content in this bundle
- Classification of Capital Account Crises