EconStor >
Bank of Canada, Ottawa >
Bank of Canada Working Papers >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/53950
  
Title:IMF-supported adjustment programs: Welfare implications and the catalytic effect PDF Logo
Authors:De Resende, Carlos
Issue Date:2007
Series/Report no.:Bank of Canada Working Paper 2007,22
Abstract:The author studies the welfare implications of adjustment programs supported by the International Monetary Fund (IMF). He uses a model where an endogenous borrowing constraint, set up by international lenders who will never lend more than a debt ceiling, forces the borrowing economy to always choose repayment over default. The immediate potential welfare cost of joining a program is driven by IMF conditionality: to be able to borrow from the IMF, the country has to submit to limits on the consumption of public goods. The benefits derive from the additional borrowing from the IMF (at a lower interest rate) and/or through a ?catalytic effect? on private loans, which facilitates consumption smoothing over time. Simulations of the dynamic model in two institutional environments?with and without the IMF?are compared. Results indicate that when conditionality forces the country to save more, at a cost that does not prevent it from joining an IMF program, the resulting lower probability of default can induce private lenders to relax their borrowing constraints. Based on a calibration of the model for the Brazilian economy, the overall welfare gains associated with IMF programs are relatively small.
JEL:F32
F33
F34
F41
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

Files in This Item:
File Description SizeFormat
529369877.pdf535.42 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/53950

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.