IMF Lending and Banking Crises

Luca Papi, Andrea Presbitero and Alberto Zazzaro ()

No 1304, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: In this paper we look at the effect of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1965-2010. The endogeneity of the Fund intervention is addressed by adopting an instrumental variable (IV) strategy, in which the degree of political similarity between IMF borrowers and the G-7 is taken as an instrument for the likelihood of a country signing an IMF lending arrangement. Controlling for the standard determinants of banking crises, the IV estimates suggest that previous IMF borrowers are significantly less likely to experience a banking crisis. We also provide evidence suggesting that compliance with conditionality matters, consistent with the importance of IMF-supported financial reform, and that the positive effect of the Fund intervention on banking sector stability works through a direct liquidity provision effect.

Keywords: Banking Crises; IMF programs; Political Economy. (search for similar items in EconPapers)
JEL-codes: F33 F34 F35 O11 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: IMF Lending and Banking Crises (2015)
Working Paper: IMF Lending and Banking Crises (2015)
Working Paper: IMF Lending and Banking Crises (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:lui:casmef:1304

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