Assessing IMF Lending: A Model of Sample Selection
24 Pages Posted: 27 Aug 2019
Date Written: July 2019
Abstract
Extending previous work on the determinants of IMF lending in an interconnected world, we introduce a model of sample selection in which both selection and size dimensions of individual IMF arrangements are presented within a unified econometric framework. We allow for unobserved heterogeneity to create an additional channel for sample selection at the country level. The results suggest that higher external financing needs, larger exchange rate depreciation, lower GDP growth, as well as deteriorated global financial conditions, are associated with larger individual IMF arrangement sizes. Using the estimated parameters, Monte Carlo simulation of a wide spectrum of global shock scenarios suggest that the distribution of potential aggregate IMF lending exhibits a substantial right tail. Our approach may provide an insightful input to broader policy discussions on the adequacy of the IMF resources.
Keywords: Supply and demand, Financial crises, Exchange rate depreciation, Foreign exchange reserves, Economic integration, IMF lending, Sample selection, VIX, Poulain, potential need, IMF
JEL Classification: C5, F00, F3, F33, E5, E44, D4, O24, E63
Suggested Citation: Suggested Citation