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Assessing IMF Lending: a Model of Sample Selection

Author/Editor:

Nicolas Mäder ; Jean-Guillaume Poulain ; Julien Reynaud

Publication Date:

July 19, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Extending previous work on the determinants of IMF lending in an interconnected world, we introduce a model of sample selection in which both selection and size dimensions of individual IMF arrangements are presented within a unified econometric framework. We allow for unobserved heterogeneity to create an additional channel for sample selection at the country level. The results suggest that higher external financing needs, larger exchange rate depreciation, lower GDP growth, as well as deteriorated global financial conditions, are associated with larger individual IMF arrangement sizes. Using the estimated parameters, Monte Carlo simulation of a wide spectrum of global shock scenarios suggest that the distribution of potential aggregate IMF lending exhibits a substantial right tail. Our approach may provide an insightful input to broader policy discussions on the adequacy of the IMF resources.