Catalytic IMF? A Gross Flows Approach

38 Pages Posted: 28 Jan 2016

See all articles by Aitor Erce

Aitor Erce

European Stability Mechanism; Banco de España - Associate Directorate General International Affairs

Daniel Riera-Crichton

Bates College

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-11-01


The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF’s catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze foreign capital, it does affect the behavior of resident investors, who are both less likely to place their savings abroad and more likely to repatriate their foreign assets. As domestic banks’ flows drive this effect, we conclude that IMF catalysis is “a banking story”. In comparing the effects across crisis types, we find that the effect of the IMF on resident investors is strongest during sovereign defaults, and that it exerts the least effect on foreign investors during bank crises.

JEL Classification: F32, F33, F36, G01, G15

Suggested Citation

Erce, Aitor and Riera-Crichton, Daniel, Catalytic IMF? A Gross Flows Approach (2015-11-01). Globalization and Monetary Policy Institute Working Paper No. 254. Available at SSRN: or

Aitor Erce (Contact Author)

European Stability Mechanism ( email )

6a Circuit de la Foire Internationale
Luxembourg, 1347

Banco de España - Associate Directorate General International Affairs

Alcala 50
Madrid 28014

Daniel Riera-Crichton

Bates College ( email )

Lewiston, ME 04240
United States

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