Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215804 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 18/2020
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
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.
Subjects: 
International Monetary Fund
catalysis
capital flows
financial crises
JEL: 
F32
F33
F36
G01
G15
ISBN: 
978-3-95729-695-5
Document Type: 
Working Paper

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