 Doing more with less: The catalytic function of IMF lending and the role of program sizeTobias Krahnke Journal of International Money and Finance, 2023, vol. 135, issue C Abstract: Financial assistance provided by the International Monetary Fund (IMF) is supposed to unlock other financing, acting as a catalyst for private capital flows. The empirical evidence of the presence of such a catalytic effect has, however, been mixed. This paper shows that a possible explanation for the rather inconclusive empirical evidence to date is the neglect of the size of an IMF program. Applying a novel identification strategy to account for endogenous selection into (large) adjustment programs, and using a comprehensive data set spanning the years 1990-2018, we show that the catalytic effect of IMF financial assistance is weakened – and potentially reversed – if the size of a program exceeds a certain level. We argue that large IMF financial assistance coupled with the IMF’s preferred creditor status can lead to a crowding-out of private investors by increasing their loss in the event of default. Our findings add to the debate on the optimal size of Fund-supported programs and can also inform the broader policy discussions on the adequacy of IMF resources. Keywords: International Monetary Fund; Capital flows; Financial crises; Lender of last resort (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:135:y:2023:i:c:s0261560623000578 DOI: 10.1016/j.jimonfin.2023.102856 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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