Working Paper: NBER ID: w12235
Authors: Barry Eichengreen; Poonam Gupta; Ashoka Mody
Abstract: Could a high-access, quick-disbursing "insurance facility" in the IMF help to reduce the incidence of sharp interruptions in capital flows ("sudden stops")? We contribute to the debate on this question by analyzing the impact of conventional IMF-supported programs on the incidence of sudden stops. Correcting for the non-random assignment of programs, we find that sudden stops are fewer and generally less severe when an IMF arrangement exists and that this form of "insurance" works best for countries with strong fundamentals. In contrast there is no evidence that a Fund-supported program attenuates the output effects of capital account reversals if these nonetheless occur.
Keywords: sudden stops; IMF programs; capital flows; liquidity insurance
JEL Codes: F02; F32; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IMF-supported programs (F33) | reduction in sudden stops (R48) |
| strong economic fundamentals (P17) | amplification of IMF program effectiveness (O19) |
| weak economic fundamentals (E66) | reduced effectiveness of IMF programs (F32) |