fixing exchange rates a virtual quest for fundamentals abstract fixed exchange rates are less volatile than floating rates but the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes this suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful it also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability

the out of sample success of term structure models as exchange rate predictors a step beyond abstract a large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate however there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities this paper proposes a term structure forecasting model of exchange rates based on a regime switching vector equilibrium correction model which is novel in this context our model significantly outperforms both a random walk and to a lesser extent a linear term structure vector equilibrium correction model for four major dollar rates across a range of horizons

imf programs do they work can they be made to work better abstract a central issue in the debate about a new international financial architecture has been whether programs of policy reform supported by the international monetary fund work the fund claims that on balance they do because of their positive effect on the balance of payments others claim that programs are ineffective and suggest that they should be discontinued this paper reviews the econometric evidence dealing with the macroeconomic effects of imf programs it goes on to provide additional evidence and judges success against alternative criteria although the record is not good the paper argues that it would be unwise for the fund to cease lending and to abandon conditionality altogether imf programs need to be redesigned and refocused the paper concludes by identifying a number of principles that should underpin reform

adoption of an imf programme and debt rescheduling an empirical analysis the existence of an empirical relationship between the adoption of an imf programme and the concession of a debt rescheduling by commercial and official creditors is tested using a bivariate probit model if countries who have arrangements with the imf are more likely than others to obtain a rescheduling of their external debt we could conclude that the adoption of an imf programme could work as a sort of signal of a country s good willingness which is thus rewarded with the debt relief the results confirm the existence of a significant effect of the adoption of an imf programme on the subsequent concession of a debt rescheduling by creditors

the demand for imf credits by sub saharan african countries abstract in this paper the demand behaviour of sub saharan african countries for imf credits will be studied on the basis of pooled cross section and time series analysis it will be concluded that drawings on imf facilities are not a purely economic phenomenon

excessive volatility in capital flows a pigouvian taxation approach this paper analyzes prudential controls on capital flows to emerging markets from the perspective of a pigouvian tax that addresses externalities associated with the deleveraging cycle it presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts this mitigates the feedback effects of deleveraging episodes when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects in our model capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare

exchange rate predictability in a changing world an expanding literature articulates the view that taylor rules are helpful in predicting exchange rates in a changing world however taylor rule parameters may be subject to structural instabilities for example in the aftermath of the global financial crisis this paper forecasts exchange rates using taylor rules with time varying parameters tvp estimated by bayesian methods focusing on the data from the crisis we improve upon the random walk for at least half and for as many as seven out of 10 of the currencies considered results are stronger when we allow the tvp of the taylor rules to differ between countries

the imf a bird s eye view of its role and operations the international monetary fund imf is the world s premier international financial institution with 184 member countries and active programmes in a significant number of them at any one time the fund attracts a great deal of attention much of it critical but the discussion is often polemic in style strongly held but frequently opposing views are expressed this survey attempts to examine in an objective way the theory and evidence relating to the fund s operations many aspects of the empirical research are relatively recent and a universal consensus is yet to emerge as a consequence there is scope for disagreement to persist however the research is also gradually clarifying many important issues the format for the survey is to examine the life cycle of imf arrangements what makes a country turn to the fund for assistance should the imf be lending what influences the outcome of negotiations and the design of programmes are imf programmes effective and why do some countries make prolonged use of imf resources for completeness there is also some discussion of the history of the imf the extent to which fund policies have been influenced by advances in economic theory and the fund s systemic role important organisational and governance issues are also covered briefly although primarily adopting an economist s perspective the survey reflects the growing recognition that in order to understand the imf s operations economics has to be combined with politics examining the imf is an exercise in applied political economy copyright 2007 the author journal compilation 2007 blackwell publishing ltd

geopolitics and international organizations an empirical study on imf facilities there is growing awareness that the distribution of imf facilities may not be influenced only by the economic needs of borrowers this paper focuses on the fact that the imf may favour geopolitically important countries in the distribution of imf loans differentiating between concessional and non concessional facilities to carry out the empirical analysis we construct a new database that compiles a wide array of proxies for geopolitical importance for 107 imf countries over 1990 2003 focusing on emerging and developing economies we use a factor analysis to capture the common underlying characteristic of countries geopolitical importance as well as a potential analysis since we also want to account for the geographical situation of the loan recipients while controlling for economic and political determinants our results show that geopolitical factors influence notably lending decisions when loans are non concessional whereas results are less robust and in opposite direction for concessional loans this study provides empirical support to the view that geopolitical considerations are an important factor in shaping imf lending decisions potentially affecting the institution s effectiveness and credibility

modelling and forecasting exchange rates with a bayesian time varying coefficient model this paper employs a multivariate bayesian time varying coefficients tvc approach to model and forecast exchange rate data it is shown that if used as a data generating mechanism a tvc model induces nonlinearities in the conditional moments and leptokurtosis in the unconditional distribution of the series it is also shown that leptokurtic behavior disappears under time aggregation as a forecasting device a bayesian tvc model improves over a random walk model the improvements are robust to several changes in the forecasting environment

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

can the markov switching model forecast exchange rates abstract a markov swirching model is fit for 18 exchange rates at quarterly frequencies the model fits well in sample for many exchange rates by the mean squared error criterion the markov model does not generate superior forecasts to a random walk or the forward rate there appears to ne some evidence that the forecasts of the markov model are superior at predicting the direction of change of the exchange rate

monetary fundamentals and exchange rate dynamics under different nominal regimes we investigate the dynamic relationship between the us dollar exchange rate and its fundamentals across different exchange rate regimes using data going back to the late 1800s or early 1900s for six industrialized countries for these countries there is evidence of a long run relation between the nominal exchange rate and monetary fundamentals consistent with conventional theories of exchange rate determination we employ a markov switching vector equilibrium correction model that allows for regime shifts in the entire set of parameters and the variance covariance matrix our results suggest that the relative importance of exchange rates and fundamentals in restoring the long run equilibrium level implied by the exchange rate monetary fundamentals model varies significantly over time and is affected by the nominal exchange rate regime in operation

does being an imf executive board member re pay an examination of imf loans and repayments this paper analyses the political economy of imf loans and repayments using data from 99 countries over the period 1984 2014 we bring two contributions to the literature analysing i the impact of the presence of a country on the imf executive board and ii repayment behaviour and not only loan requests we show evidence that loans from and repayments to the imf are influenced by the presence of countries on the imf executive board in particular the results indicate that a position on the board increases the loan amount by approximately 0 5 points and the repayment amount by approximately 0 2 points

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

effectiveness of imf supported stabilization programs in developing countries abstract this paper examines the effectiveness of fund supported stabilization programs by investigating whether the imf achieves its own objectives in such programs even though the fund s conditionality prescribes fiscal and monetary discipline in program countries the results of the empirical analysis show that the imf cannot impose its conditionality even during program years furthermore when successive interprogram periods are considered program countries enter a new program in a worse macroeconomic condition than they entered the previous program these results and the fact that stabilization programs have a revolving nature are inconsistent with the effectiveness of imf supported stabilization programs and may signal the existence of moral hazard

crisis in the eye of the beholder economic crisis and partisan politics in latin american and east european international monetary fund programs this article analyzes the interaction between economic crises and partisan politics during international monetary fund program initiation in latin america in the 1980s and eastern europe in the 1990s the author argues that economic crises are at least in part in the eye of the beholder and therefore policy responses reflect the interaction between crisis intensity and the government s partisan interpretation of the crisis which in turn depends on the nature of the economic crisis and its broader regional and international environment using cross country statistical evidence from the two regions the article shows that certain types of crises such as liquidity shortfalls elicit similar responses across the ideological spectrum and regional contexts by contrast debt repayment and domestic crises are more prone to divergent ideological interpretations but the extent of partisan divergence is context sensitive in that it occurred during the latin american debt crisis but not in the post communist tra

an analysis of drawings on the international monetary fund by developing countries the nature of relations between the imf and developing countries has come under close scrutiny in recent years this has partly been the result of the deteriorating economic situation in which a large number of non oil developing countries have found themselves a situation characterised by falling rates of economic growth increasing balance of payments deficits and rising debt service ratios and partly it has resulted from the particular but public experiences of a number of developing countries such as jamaica peru and tanzania in their dealings with the fund

the imf and precautionary lending an empirical evaluation of the selectivity and effectiveness of the flexible credit line abstract this paper provides an empirical evaluation of the flexible credit line fcl the imf s prime precautionary lending instrument since 2009 to which so far only mexico colombia and poland have subscribed we consider both questions of selectivity and effectiveness first which variables explain the three countries participation in fcl arrangements and second to which extent has the fcl delivered on its promise of boosting market confidence in its respective users based on a probit analysis we show that fcl selectivity can be explained by both demand and supply side factors the probability of participation in the fcl was greater in countries that experienced larger prior exchange market pressures that had lower bond spreads and inflation that accounted for higher shares in us exports and that exhibited a higher propensity of making political concessions to the us using a synthetic control approach we find evidence for some but generally limited beneficial effects on sovereign bond spreads and gross capital inflows into the three fcl countries overall our results suggest that any economic stigma that may prevent eligible countries from entering into an fcl arrangement is unwarranted conversely the apparent link of fcl participation with us interests is not conducive to overcoming political stigma

regime shifts and the canada us exchange rate in a multivariate framework this study re evaluates the monetary approach for the canada u s exchange rate and shows that its basic structure can be verified although the coefficients are not consistently in line with theory our findings also indicate that exchange rate adjustment is subject to regime shifts

the effect of imf programs on economic growth abstract using a bivariate dynamic version of the heckman selection model we estimate the effect of participation in international monetary fund imf programs on economic growth we find evidence that governments enter into agreements with the imf under the pressures of a foreign reserves crisis but they also bring in the fund to shield themselves from the political costs of adjustment policies program participation lowers growth rates for as long as countries remain under a program once countries leave the program they grow faster than if they had remained but not faster than they would have without participation

exchange rates innovations and forecasting in this paper an ex post forecasting experiment is performed on the basis of a version of the news model of exchange rate determination for several exchange rates the news formulation of monetary exchange rate models leads to relatively accurate ex port exchange rate forecasts at a number of forecasting horizons for a majority of the exchange rates studied however the results do not compare favorably with those obtained from the naive random walk forecasting rule thus the findings in this article provide mixed evidence with regard to a suggestion in the literature that the finding by meese and rogoff that structural models do not even outperform the random walk in an ex post forecasting experiment may be due to the fact that these models were not properly tested in a news framework the forecasting performance of structural exchange rate models has recently received considerable attention meese and rogoff 1983a b have studied the forecasting performance of several important structural exchange rate models while in sample studies of these models usually show quite satisfactory fits meese and rogoff s out of sample results based on instrumental variables estimates were not very encouraging the structural models failed to improve upon the simple random walk forecasting rule even though the models forecasts were based

exchange rate regimes in developing and emerging economies and the incidence of imf programs summary the global economic crisis will compel many countries to revise key economic policies including their exchange rate regime the international monetary fund will have significant influence on their choices and has exhibited a bias against intermediate regimes we examine the link between exchange rate regimes and imf program use and find no evidence that countries with intermediate exchange rate regimes require more frequent imf assistance rather they appear somewhat less dependent especially when compared to fixed exchange rates our results suggest that intermediate regimes should remain a viable and possibly desirable exchange rate choice for some countries

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

macroeconomic performance and adjustment under policies commonly supported by the international monetary fund the fundamental objective of any adjustment program whether supported by the international monetary fund imf or otherwise is to eliminate disequilibrium between aggregate demand and supply which is typically reflected in balance of payments deficits and rising prices in the past the imf stabilization programs were basically demand side the focus on the demand management is based on the absorption and especially the monetary approach to the balance of payments in recent years however the imf has recognized the importance of supply factors and thus adjustment programs include policy tools that deal with production bottlenecks ways to improve resource utilization and so forth this shift in policy does not however imply that the imf attaches less significance to demand than supply factors in his recent paper mohsen khan states that although supply shocks can cause disequilibrium between aggregate demand and supply often such imbalances can be traced to inappropriate policies that expand aggregate demand too rapidly relative to the growth of the productive capacity in the economy the purpose of this article is to examine directly the effects that a typical stabilization program may have on three important macroeconomic variables the growth rate in real output economic growth the inflation rate and the current account balance to provide some empirical foundation for the analysis the effects of such programs are illustrated through regression analysis three models that examine the relationship between relevant macroeconomic variables and the imf s instrumental tools are introduced the analysis covers 43 countries of which 27 are program countries that used imf financial resources during 1977 the period under study is 1977 83 during 1976 77 the

testing for bubbles in exchange markets a case of sparkling rates this paper investigates the possibility that the observed deviations of major bilateral exchange rates from values implied by market fundamentals are a consequence of rational asset market bubbles when a new econometric methodology for detecting asset market bubbles is used the joint hypothesis of no bubbles and stable autoregressive processes for relative money supplies and real incomes is rejected for the dollar deutsche mark and dollar pound ratesusing monthly data over the period 1973 82 additional tests for coefficient stability and for lack of cointegration between exchange rates and market fundamentals suggest that the bubble findings must be interpreted with care

time varying parameters and the out of sample forecasting performance of structural exchange rate models varying parameter estimation techniques based on recursive application of the kalman filter are used to improve the predictive performance of a class of monetary exchange rate models i find that allowing estimated parameters to vary over time enhances the models forecasting performance for the dollar pound dollar mark and dollar yen exchange rates contrary to earlier results in the literature ex post forecasts for the dollar mark rate compare favorably with those obtained from the naive random walk forecasting rule

internet start ups access to the bank loan market evidence from italy the analysis of the bank sector s ability to efficiently fuel the birth of new italian business ventures in internet related services is studied in particular through the specification and the estimate of a series of econometric models this paper aims at investigating which characteristics of a large sample of internet start ups and their relative founders facilitate access to the loan market more precisely the role played by founders human capital as a possible significant signal used by banks to evaluate investment projects is addressed estimation results suggest that highly qualified human resources possessed by internet founders do not represent an important driver for gaining access to bank credit and they do not affect the amount of the incurred debt

the economic and political determinants of imf and world bank lending in the middle east and north africa mena assumes both political and economic significance politically it is arguably the epicentre of world crisis chronically war prone and the site of the world s most protracted conflicts hinnebusch 2003 p 1 economically it owns the bulk of the world s oil reserves driving in particular the usa economic engine in light of the region s geopolitically and economically strategic position in the world economy it is clear that economic and political factors are inextricably linked when it comes to the manner in which the west particularly the usa responds to the region s needs

the effects of imf and world bank lending on long run economic growth an empirical analysis summary the international monetary fund and the world bank frequently and often repeatedly extend loans to developing nations these loans have been blamed for generating adverse economic outcomes the growth impact of fund and bank loan programs is assessed using an empirical growth model that controls for other determinants of growth a unique feature of this study is the use of the value of loans rather than the number of programs the estimates indicate that bank lending stimulates growth in some cases primarily by increasing public investment fund lending is either neutral or detrimental to growth the channel for this effect is a negative impact of fund lending on public as well as private investment

does purchasing power parity hold sometimes regime switching in real exchange rates standard unit root tests are not very powerful in drawing conclusions regarding the validity of purchasing power parity ppp rather than asking whether ppp holds throughout the whole sample period we examine in this study if ppp holds sometimes by employing hamilton type 1989 markov regime switching models when at least one of multiple regimes is stationary ppp holds locally within the regime there are indeed various reasons that we should expect that the persistence of real exchange rates changes over time employing five real exchange rates spanning more than 100 years we find herein strong evidence that the strength of ppp varies during the sample periods and that there exist stationary regimes in which ppp holds throughout the article we also make comparisons to previous markov regime switching estimation results by kanas 2006 on the same data series the new markov switching model selection criterion of smith et al 2006 which is devised especially for discriminating markov regime s

the monetary exchange rate model as a long run phenomenon abstract pure time series based tests fail to find empirical support for monetary exchange rate models in this paper we apply pooled time series estimation on a forward looking monetary model resulting in parameter estimates which are in compliance with the underlying theory based on a panel version of the engle and granger engle r f granger c w j 1987 co integration and error correction representation estimation and testing econometrica 55 251 276 two step procedure we find that the residuals of the panel based estimated monetary model are stationary this indicates that on a pooled time series level there is cointegration between the exchange rate and the macroeconomic fundamentals of this monetary model

the revolving door duration and recidivism in imf programs quarterly evidence on participation in imf programs for the period 1974 2003 is examined statistically using the techniques of hazard analysis and error correction estimation three hypotheses are proposed and tested and the results support a revolving door explanation of participation in imf programs first an increase in cumulative prior participation in imf programs is found to cause a reduction on average in the length of a new spell of participation second the length of time between participation spells is reduced significantly with an increase in cumulative prior participation in imf programs third the evolution of reserve adequacy is shown to be significantly and positively affected by participation in imf programs the results depict a revolving door to imf participation and for those countries with prior participation the door revolves more rapidly this result is shown to depend critically upon the mix of countries considered the increase in recidivism is a phenomenon most strongly observed among the least developed countries while the reduction in duration is more strongly observed in the emerging and transition economies these results are derived while controlling for country specific unobserved heterogeneity year specific demand effects external shocks and pre existing policy distortions

forecast improvements using a volatility index this paper explores the possibility of improved out of sample forecasting for stock returns and foreign exchange rates using observed nonlinearities in the two series forecasting is done using nonparametric techniques where important information is obtained from the current level of volatility in the series for both series forecast improvements are observed but for stock returns the improvements are only marginal these results indicate the usefulness and stability of some types of nonlinear modelling for financial markets

economic determinants of imf financial arrangements abstract we analyze factors that lead to imf approval of financial arrangements we account for both economic variables that induce a country to seek an imf arrangement demand side factors and macroeconomic policy commitments that the imf considers when deciding whether to approve it supply side factors using a pooled sample of annual observations for 91 developing countries over 1973 1991 we obtain maximum likelihood bivariate and univariate probit estimates of the approval of an imf arrangement for a given country in a given year a number of demand side and supply side variables are statistically significant determinants of the approval of an imf arrangement

co integration tests for long run equilibrium in the monetary exchange rate model abstract the monetary model of exchange rate determination is tested as a long run equilibrium relation tests of co integration among the variables in this model over a wide range of specifications are generally unfavorable to the monetary approach

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

imf lending programs participation and impact abstract participation in imf programs has been an option that more and more developing countries have exercised in recent years in this paper a detailed analysis of such participation over the period 1976 1986 provides a number of insights into the motivations for and the macroeconomic effects of such participation participation is driven by a combination of past performance present external influences and sluggish adjustment of developing countries the ability to predict which countries will participate in the imf program is quite good with nearly 90 percent of variation in such choices accounted for by the explanatory variables employed increased participation has as contemporaneous effects a reduction in economic growth and domestic investment and an improvement in the current account lagged effects of increased participation on economic growth and domestic investment are positive and in most estimates quantitatively greater than the contemporaneous effects there is also evidence of significantly lower public investment an increased budget surplus and real depreciation of the exchange rate with increased participation results for domestic credit creation and government current expenditure although they have a sign consistent with more austere policy cannot be shown to be significantly different from those not participating

an economic evaluation of empirical exchange rate models this paper provides a comprehensive evaluation of the short horizon predictive ability of economic fundamentals and forward premiums on monthly exchange rate returns in a framework that allows for volatility timing we implement bayesian methods for estimation and ranking of a set of empirical exchange rate models and construct combined forecasts based on bayesian model averaging more importantly we assess the economic value of the in sample and out of sample forecasting power of the empirical models and find two key results 1 a risk averse investor will pay a high performance fee to switch from a dynamic portfolio strategy based on the random walk model to one that conditions on the forward premium with stochastic volatility innovations and 2 strategies based on combined forecasts yield large economic gains over the random walk benchmark these two results are robust to reasonably high transaction costs

the failure of the monetary exchange rate model for the canadian u s dollar in this paper the validity of the monetary exchange rate model in the long run for the canadian u s dollar exchange rate is examined the primary test employed is the johansen 1991 and johansen and juselius 1990 cointegration technique the effects of dummy variables and lag specification on the statistical inference are considered and monte carlo simulations based on the estimated parameters are employed despite the use of the longest data set yet for the canadian case no evidence is found in favour of the monetary exchange rate model using the johansen procedures this result is confirmed by several other cointegration procedures jel classification f31 f41 la faillite du modele monetaire du taux de change pour les dollars canadien et americain ce memoire examine le modele monetaire du taux de change pour savoir s il est valide par l experience canado americaine en longue periode le test principal utilise est la technique de cointegration de johansen 1991 et johansen et juselius 1990 les effets des variables fictives et de la specification de la structure de delais sur l inference statistique sont consideres et on utilise des simulations de monte carlo fondees sur les parametres calibres malgre le fait qu on fait appel a la plus longue serie chronologique utilisee dans ce type d analyse a ce jour on ne trouve aucun support du modele monetaire du taux de change en utilisant les procedures de johansen ce resultat est confirme par l utilisation de plusieurs autres procedures de cointegration

nominal exchange rate regimes and the real exchange rate abstract two assumptions about the real exchange rate are common in the literature on international finance 1 the real exchange rate is a random walk 2 the time series properties of the real exchange rate depend on the nominal exchange rate regime this paper presents evidence that indicates that the random walk behavior of the real exchange rate is only a characteristic of the post world war ii period moreover our findings also suggest that what is crucial to the real exchange rate behavior is the particular historical period rather than the nominal exchange rate arrangement

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

what explains the success or failure of structural adjustment programs in the 1980s development assistance shifted largely from financing investments such as roads and dams to promoting policy reform this change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment after nearly 20 years experience with policy based or conditional lending there have now been many studies of adjustment lending most of which take a case study approach many conclude that policy based lending works if countries have decided on their own to reform the authors examine a database of 220 world bank supported reform programs to identify why adjustment programs succeed or fail they find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time variables under the world bank s control resources devoted to preparation and supervision or number of conditions have no relationship with an adjustment program s success or failure what development agencies must do then is select promising candidates for adjustment support when the candidates is a poor selection devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform to improve its success rate with adjustment lending the world bank must become more selective and do a better job of understanding which environments are promising for reform and which are not that is likely to lead to fewer adjustment loans unless there is a significant change in the number of promising reformers to become more effective at supporting policy reform the agency must be willing to accept that this may lead to smaller volumes of lending

the imf forever an analysis of the prolonged use of fund resources considerable concern has been expressed about the prolonged use made of international monetary fund imf resources by a number of member countries some commentators have seen this as being fundamentally at odds with the role of the imf as a source of temporary balance of payments support and as one aspect of mission creep by the fund the perceived importance of the issue is reflected by the fact that the first report of the fund s independent evaluation office focused on it this article provides a detailed analysis of the prolonged use of fund resources it assesses the extent to which it is a problem and draws on available empirical evidence both qualitative and quantitative to isolate the causes of prolonged use it concludes by examining the policy questions to which prolonged use gives rise

empirical exchange rate models and currency risk some evidence from density forecasts a large literature in exchange rate economics has investigated the forecasting performance of empirical exchange rate models using conventional point forecast accuracy criteria however in the context of managing exchange rate risk interest centers on more than just point forecasts this paper provides a formal evaluation of recent exchange rate models based on the term structure of forward exchange rates which previous research has shown to be satisfactory in point forecasting in terms of density forecasting performance the economic value of the exchange rate density forecasts is investigated in the context of an application to a simple risk management exercise

the economic characteristics of imf program countries abstract a logit analysis is utilized to identify the factors that characterized developing nations that entered imf stabilization programs in the early 1980s program countries recorded higher rates of domestic credit growth larger shares of government expenditure more severe current account deficits smaller reserve holdings and lower per capita incomes

the economic impact of short term imf engagement in low income countries summary this study estimates the economic impact of imf supported programs addressing policy and exogenous shocks in low income countries lics using the propensity score matching approach focusing on a more homogenous group of financing events greatly improves the specification and predictive power of the selection model as compared to earlier studies which is the key requirement to control for selection bias this paper looks into a wide range of potential economic and political determinants of participation lower reserve coverage deterioration in the current account balance a weaker real gdp growth increased macroeconomic instability evident in higher fiscal deficits inflation and exchange market pressures and lagged elections would increase the probability of participation i e propensity scores moreover global conditions including changes in real oil and non oil commodity prices and world trade are also significant therefore adverse global shocks could create cycles in demand for imf financing the short term imf engagement is positively associated with a wide range of macroeconomic outcomes notably the impact on the short term growth is the greatest and becomes significant only for lics facing substantial macroeconomic imbalances or large exogenous shocks when matching accounts for propensity scores and institutional quality program countries in this group have changes in growth 1 5 and 3 5 percentage points higher than the control group

aggregate price shocks and financial instability a historical analysis i introduction the notion that central banks should act as lenders of last resort is not controversial how best to carry out that responsibility is however not widely agreed on one view holds that the financial system is inherently fragile and a central bank should forgo other objectives such as preventing inflation when financial instability threatens an alternative view argues that by controlling inflation a central bank will in fact promote financial stability anna schwartz 1988 1995 for example contends that financial instability has often been caused by monetary policies that cause fluctuations in the rate of inflation she argues that monetary policy should focus exclusively on maintaining price stability a few countries for example canada and new zealand have recently made inflation control the paramount objective of their central bank s monetary policy and the maastricht treaty which established monetary union among 11 european community countries specifies control of inflation as the principal objective for the european central bank most countries including the united states assign their central banks multiple objectives such as full employment and financial stability as well as inflation control implicitly the specification of multiple objectives for monetary policy assumes trade offs between those goals that a country might have to accept higher inflation at least temporarily to maintain financial stability for example this article investigates the historical association between aggregate price and financial stability to shed light on the question of whether a commitment to price stability is likely to enhance or lessen financial stability specifically we use data for the united states from 1790 to 1997 to test the hypothesis that aggregate price disturbances cause or worsen financial instability unanticipated aggregate price declines might increase financial distress by leaving some borrowers with insufficient income to repay contracted nominal debt thus unanticipated aggregate price declines would increase insolvency and default rates positive aggregate price shocks on the other hand might cause default rates to fall below expectations and could encourage financial expansion if borrowers and lenders are unable to distinguish changes in relative prices from changes in the aggregate price level financial expansion based on aggregate price misperceptions can lead to resource misallocation however and thereby worsen financial distress associated with subsequent unanticipated aggregate price declines during 1790 1933 unanticipated movements in the price level best represent price shocks whereas the persistence of inflation since 1933 led us to examine the impact of unanticipated inflation on financial conditions during 1934 97 we use the phrase aggregate price shock to refer to unanticipated movements in either the price level or the inflation rate in the absence of consistent time series measures of aggregate financial conditions over a long period we construct an annual index of financial conditions from both quantitative and narrative sources we use a dynamic time series probit model to estimate the impact of aggregate price shocks on financial conditions as reflected in the index we also regress four series used to construct the index on aggregate price shocks to confirm that the relationship between aggregate price shocks and the index is present in its constituent series we control for liquidity real output growth and supply shocks and test whether relationships changed with changes in monetary or financial regime our objective is to shed light on the extent that aggregate price disturbances exacerbate financial instability and whether the relationship between such disturbances and financial conditions is affected by the institutional environment we begin by outlining why aggregate price shocks might cause or worsen financial instability