Assessing IMF Lending: a Model of Sample Selection

IMF Working Papers, July 19, 2019

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Extends previous work on the determinants of IMF lending in an interconnected world.
Introduces a model of sample selection that unifies selection and size dimensions of individual IMF arrangements within a single econometric framework.
Allows for unobserved heterogeneity to create an additional channel for sample selection at the country level.
Uses estimated parameters in Monte Carlo simulation of a wide spectrum of global shock scenarios to assess the distribution of potential aggregate IMF lending.

Unified econometric framework combining:
- Selection dimension (which countries receive IMF arrangements).
- Size dimension (how large individual IMF arrangements are).
Incorporates unobserved heterogeneity at the country level as an additional channel for sample selection.
Employs Monte Carlo simulation using estimated parameters to generate scenario-based distributions of aggregate lending.

Factors associated with larger individual IMF arrangement sizes:
- Higher external financing needs.
- Larger exchange rate depreciation.
- Lower GDP growth.
- Deteriorated global financial conditions.
Monte Carlo simulation results:
- The distribution of potential aggregate IMF lending exhibits a substantial right tail under a wide spectrum of global shock scenarios.

The approach provides an insightful input to broader policy discussions on the adequacy of the IMF resources.
By capturing both selection and size together and allowing for unobserved country-level heterogeneity, the model informs stress-testing and resource adequacy assessments under systemic shock scenarios.