Are IMF Rescue Packages Effective? A Synthetic Control Analysis Of Financial Crises
Speaker(s) Mr. Kevin Kuruc, University of Texas at Austin Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

This paper estimates the output effects of IMF loans during acute macroeconomic crises. Using the universe of financial crises from 1975-2010, I study whether recovery dynamics differ across crises that do and do not receive IMF intervention. I condition on the type of financial crisis, employ a new estimator to find the most relevant controls units—the synthetic control method—and use forward looking variables to address the selection issues associated with IMF lending. In contrast to much of the existing literature, I find that IMF lending has large short-run effects. Countries that receive an IMF loan have GDP that is, on average, 1-2 percent larger in the 2-3 years following the onset of a crisis than what is predicted by their synthetic controls. Consistent with either a liquidity effect or policy advice specific to managing a crisis, the difference fades in the medium run. Likewise, I find the recovery effects are largest in countries with weak institutions: places where policy advice and an “international lender of last resort” may be most useful.

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