Lending Credibility: The International Monetary Fund and the Post-Communist Transition

By Randall W. Stone | Go to book overview

4
An Empirical Test of the Model
THE PREVIOUS chapter summarized the existing literature on the effectiveness of the IMF and outlined a series of objections to the current state of the art. It concluded that there are no clean solutions to the problems inherent in controlgroup approaches that use IMF programs as the unit of analysis, and it would therefore be more fruitful to develop an alternative approach. Furthermore, the formal model presented in chapter 2 is not amenable to testing in the traditional way, using before-after or control-group comparisons, since it does not share the prediction implicit in such studies that IMF intervention exerts its influence only during periods when programs are active. Rather, it predicts that the IMF exerts an effect on countries' policies both when they have programs, because countries want to avoid program suspensions, and when they do not, because countries without active programs may hope to take advantage of IMF financing in the future.The model offers novel testable hypotheses about the pattern of IMF lending—when programs are suspended and when they are resumed—and about the effect of interaction with the IMF on government policies and investors' responses. These hypotheses follow from the logic of strategic interaction and, in some cases, are quite counterintuitive. The tests of the hypotheses reported in this chapter make it possible to assess indirectly both the effectiveness of IMF intervention and the variation in that effectiveness across countries and over time. The hypotheses are as follows:
1. Countries with substantial international influence will be subject to shorter punishment intervals, because the threat of longer punishments is not credible;
2. Influential countries will deviate from their programs more often and consequently will be subject to more frequent program suspensions;
3. Countries eligible to participate in IMF programs should have less inflationary policies than countries that are ineligible, regardless of whether they have active programs in place;

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Lending Credibility: The International Monetary Fund and the Post-Communist Transition
Table of contents

Table of contents

  • Title Page *
  • Contents vii
  • Figures xi
  • Tables xiii
  • Acronyns xv
  • Preface xix
  • Lending Credibility *
  • 1 - Introduction 1
  • Part I - Models and Data 13
  • 2 - A Formal Model of Lending Credibility 15
  • Appendix - A Formal Model of Lending Credibility 29
  • 3 - Studying Imf Effectiveness 39
  • 4 - An Empirical Test of the Model 59
  • Part II - History 87
  • 5 - Poland 89
  • 6 - Russia 116
  • 7 - Ukraine 169
  • 8 - Bulgaria 209
  • 9 - Conclusion 233
  • Appendixes 243
  • A - Data 245
  • B - Statistical Methods 250
  • C - List of Interviews 262
  • Bibliography 266
  • Index 279
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