Assessing IMF Lending: A Model of Sample Selection

24 Pages Posted: 27 Aug 2019

See all articles by Nicolas Mäder

Nicolas Mäder

Vanderbilt University

Jean-Guillaume Poulain

International Monetary Fund (IMF)

Julien P. M. Reynaud

International Monetary Fund (IMF)

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

Mäder, Nicolas and Poulain, Jean-Guillaume and Reynaud, Julien P. M., Assessing IMF Lending: A Model of Sample Selection (July 2019). IMF Working Paper No. 19/157, Available at SSRN: https://ssrn.com/abstract=3442871

Nicolas Mäder (Contact Author)

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

Jean-Guillaume Poulain

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Julien P. M. Reynaud

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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