1 / 30

Lending Credibility

Lending Credibility. The International Monetary Fund and the Post- Communist Transition Randall W. Stone University of Rochester. The IMF. The most universally despised of international institutions. Left: Executive committee of int’l capitalism. Right: Big government writ large.

stuart-berry
Download Presentation

Lending Credibility

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lending Credibility The International Monetary Fund and the Post- Communist Transition Randall W. Stone University of Rochester

  2. The IMF The most universally despised of international institutions Left: Executive committee of int’l capitalism Right: Big government writ large Moderates: Criticize tactical mistakes

  3. Area specialists, qualitative researchers and practitioners attribute far-reaching influence to the IMF The Puzzle • Quantitative scholars have yet to • demonstrate this influence • How much influence can an international • institution have?

  4. Faulty assumptions • The IMF only exercises influence during program periods • IMF intervention has a constant effect across countries & over time • IMF intervention is exogenous • Political constraints are omitted variables

  5. Theory: Desirable Features • The IMF is a strategic actor with a credibility problem • Countries vary in “size” • IMF influence depends on international investors • Defection and punishment should happen in equilibrium • Inflation is subject to inertia

  6. The Model • Actors: Many investors, n governments, IMF • Actions: Investors may invest, governments may create inflation, the IMF may disburse a loan tranche • Preferences: Investors, IMF are averse to inflation. IMF prefers to disburse. Countries are tempted to defect, and the temptation is a random variable • Information: The government’s current level of temptation is private information • Repetition: Infinite

  7. The Stage Game • b • N I 1-b •

  8. The Stage Game k • 0 b • N I k 1-b • 0

  9. The Stage Game gi x • k 0 • gi x • 0 b 0 • N I gi x k • 1-b • 0 gi x • 0 0

  10. The Stage Game IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  11. Single-shot Nash IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  12. Single-shot Nash IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  13. Single-shot Nash IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  14. Repeat, repeat… IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  15. Repeated game equilibrium IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  16. Repeated game equilibrium IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  17. Repeated game equilibrium IMF • s gi • x • • 0 k IMF • s • 0 • • 0 IMF • gi s x • • • 0 0 b IMF • s • • 0 • 0 • N I IMF s • gi x • k • 0 • IMF 1-b s • • 0 • 0 gi IMF • x s • • • 0 0 IMF • s • 0 • 0

  18. Equilibrium (PBE) • IMF plays “hold the line” with small countries and “tit for tat” with large ones • Governments defect if the temptation exceeds a critical value, which depends on size and whether the program is suspended • Investors invest if there was no inflation in the previous period; interest rates depend on the size of countries

  19. Comparative Statics • Large countries are subject to shorter punishment periods • Large countries defect at a higher rate, so they are punished more frequently and pay higher interest rates • Countries defect more often when programs are already suspended • This effect is smaller in large countries

  20. Research Design • Estimate duration model for IMF status H1: Influence  shorter punishment H2: Influence  more frequent punishment • Estimate models of policy variables H3: Influence  inflation, devaluation H4: Credibility  low inflation, stability • Case studies: Russia, Ukraine, Poland, Bulgaria

  21. Duration of Punishment

  22. Duration of Good Standing

  23. Models of Policy Variables

  24. Substantive effects

  25. Models of Policy Variables

  26. 1996 Russian Election

  27. Cases: Stylized Facts Russia & Ukraine Poland & Bulgaria • Punished briefly •Punished severely • Frequent suspensions •Rare suspensions • Conditions negotiable •Conditions credible • Crises of 1998 •Crisis of 1997

  28. Conclusions • The IMF has far-reaching influence • IMF influence is limited if it cannot credibly commit to enforcing conditionality Reform? Increase the IMF’s independence

More Related