A Cure Worse than the Disease? Currency Crises and the Output Costs of Imf-Supported Stabilization Programs

53 Pages Posted: 17 May 2001 Last revised: 13 Mar 2022

See all articles by Michael M. Hutchison

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

This paper investigates the output effects of IMF-supported stabilization programs, especially those introduced at the time of a severe balance of payments/currency crisis. Using a panel data set over the 1975-97 period and covering 67 developing and emerging-market economies (with 461 IMF stabilization programs and 160 currency crises), we find that currency crises even after controlling for macroeconomic developments, political and regional factors significantly reduce output growth for 1-2 years. Output growth is also lower (0.7 percentage points annually) during IMF-stabilization programs, but it appears that growth generally slows prior to implementation of the program. Moreover, programs coinciding with recent balance of payments or currency crises do not appear to further damage short-run growth prospects. Countries participating in IMF programs significantly reduce domestic credit growth, but no effect is found on budget policy. Applying this model to the collapse of output in East Asia following the 1997 crisis, we find that the unexpected (forecast error) collapse of output in Malaysia where an IMF-program was not followed-- was similar in magnitude to those countries adopting IMF programs (Indonesia, Korea, Philippines and Thailand).

Suggested Citation

Hutchison, Michael M., A Cure Worse than the Disease? Currency Crises and the Output Costs of Imf-Supported Stabilization Programs (May 2001). NBER Working Paper No. w8305, Available at SSRN: https://ssrn.com/abstract=270375

Michael M. Hutchison (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-2600 (Phone)
831-459-5900 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
64
Abstract Views
1,252
Rank
162,865
PlumX Metrics