Are IMF rescue packages effective? A synthetic control analysis of macroeconomic crises.

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Author: Kevin Kuruc
Date: Apr. 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 274 words

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Abstract :

Keywords IMF; Financial crises; Synthetic controls; Business cycle policy Highlights * IMF programs bisect a dip and recovery in growth rates. * A synthetic control analysis suggests the growth recovery is causal. * Nonparametric effect estimates are hump-shaped, hinting at a liquidity mechanism. * Effects do not vary by program characteristics; are larger for weak governments. Abstract Whether, and to what degree, IMF lending succeeds in stabilizing economies remains an open question. Here, a synthetic control analysis of macroeconomic crises with IMF intervention is performed--leveraging the existence of similar crises without intervention--that finds positive recovery effects. In the first five years following a crisis, output differences are, on average, nearly two percent of GDP per year. Consistent with a liquidity channel, effects are hump-shaped and fade in the medium run. An analysis of historical IMF forecasts provides evidence against selection as a spurious driver of this result, suggesting that these positive estimates are indeed causal. Author Affiliation: Department of Economics, University of Oklahoma, 332 Cate Center One, Norman, Oklahoma, 73019, USA Article History: Received 16 February 2021; Revised 31 January 2022; Accepted 1 February 2022 (footnote)[white star] I would like to thank Oli Coibion and Dean Spears for invaluable mentorship throughout this project. Additionally, I thank David Beheshti, Saroj Bhattarai, Firat Demir, Dan Hicks, Cooper Howes, Niklas Kroner, Amartya Lahiri, Melissa LoPalo, Shinji Takagi, Tom Vogl, Tim Willems and the seminar participants at the University of Texas at Austin, the University of Oklahoma, and the Centre For Advanced Financial Research and Learning at the Reserve Bank of India, for helpful comments, feedback, and suggestions. All remaining errors are my own. Byline: Kevin Kuruc []

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Gale Document Number: GALE|A700885616