Is the pragmatic response to International Monetary Fund quotas and credit limits favourable?

Tatsuyoshi Miyakoshi

Applied Economics, 2014, vol. 46, issue 33, 4075-4082

Abstract: Under the International Monetary Fund (IMF)'s recently developed pragmatic response, the amount a member can borrow is not determined by its quota. We consider two pragmatic responses that produce a Pareto improvement, compared with the IMF rule: one mandated by the IMF and the other related to the trade of the additional credit limit in the market. Both these responses indicate that the additional credit limit on top of the IMF rule should be positive (negative) for a country whose investment return is larger (smaller) than the average investment return across all IMF member developing countries. The rule for the IMF credit limit does not reflect the demand for credit, which induces inefficiency. The first pragmatic response, which has an appropriately small negotiation and distribution cost per unit incurred by the IMF, may dominate the second one.

Date: 2014
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DOI: 10.1080/00036846.2014.950796

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