Sudden Stops and IMF-Supported Programs

Barry Eichengreen, Poonam Gupta and Ashoka Mody

in Financial Markets Volatility and Performance in Emerging Markets

Published by University of Chicago Press

Published in print March 2008 | ISBN: 9780226184951
Published online February 2013 | e-ISBN: 9780226185040 | DOI:
Sudden Stops and IMF-Supported Programs

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This chapter suggests that International Monetary Fund (IMF)-supported programs and IMF credits reduce the likelihood of sudden stops. There is some evidence that this stabilizing effect is stronger for countries with strong fundamentals. This can be interpreted in terms of the literature on global capital account shocks and the stabilizing effect of liquidity insurance. Emergency financial assistance can then reassure individual investors of the country's continued ability to finance its international transactions and reduce their incentive to liquidate their positions. Emergency lending by the IMF can ensure the continued provision of private finance in much the way that lender-of-last-resort intervention by a central bank can limit the scope for bank runs. However, if country fundamentals are weak, IMF financial assistance may only come in the front door and go out the back door, with no impact on the incidence of the sudden stop.

Keywords: International Monetary Fund; credits; sudden stops; global capital; account shocks; liquidity insurance; emergency lending; private finance; bank runs; financial assistance

Chapter.  18005 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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