An Identity Crisis? Examining IMF Financial Programming

NYU Development Research Institute No. 6

31 Pages Posted: 9 Sep 2002

See all articles by William Easterly

William Easterly

New York University - Department of Economics

Date Written: February 2004

Abstract

The IMF uses its well-known "financial programming" model to derive monetary and fiscal programs to achieve desired macroeconomic targets in countries undergoing crises or receiving debt relief. Financial programming is based on monetary, balance of payments, and fiscal accounting identities. This paper considers under what conditions financial programming would work best, and then tests those conditions in the data. All of the identities contain large statistical discrepancies, which weakens the case for them as a "consistency check." In at least the literal applications of the framework, financial programming does not do well in forecasting or explaining the target variables, even when some components of the identity are known with certainty. These results suggest that IMF staff have to rely on macroeconomic theory and empirics that come from outside the financial programming framework is designing stabilization packages.

Keywords: Monetary policy, Fiscal Policy, Budget Deficits, Economic Growth, Balance of Payments

JEL Classification: E52, E61, F30, F40, O11, O19

Suggested Citation

Easterly, William, An Identity Crisis? Examining IMF Financial Programming (February 2004). NYU Development Research Institute No. 6. Available at SSRN: https://ssrn.com/abstract=320113 or http://dx.doi.org/10.2139/ssrn.320113

William Easterly (Contact Author)

New York University - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

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