Effect of IMF Structural Adjustment Programs on Expectations: The Case of Transition Economies

November 1, 2007

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Patrick A. Imam Effect of IMF Structural Adjustment Programs on Expectations: The Case of Transition Economies, (USA: International Monetary Fund, 2007) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We analyze the effect of IMF programs on economic agents' expectations about the economy in transitional countries using survey data from the Central and Eastern Eurobarometer poll, an annual general public survey monitoring the evolution of public opinion from 1990 to 1997. Previous studies, in contrast, have looked at indirect measures, such as capital flows or yield spreads, to assess the impact of IMF programs on economic expectations. Using a multinomial probit model, we find that IMF loans appear to have a strong effect on agent expectations in the early years, through the inflow of real money, and through the signaling effect. IMF programs during periods of collapsing growth appear to reinforce underlying expectations for the future; they are associated with positive expectations for those with an optimistic outlook and negative expectations for those with a negative outlook. Once recovery is underway, and economic uncertainty diminishes, it appears that IMF programs cease to have a statistically significant effect on the expectations of economic agents. This suggests that IMF programs have the biggest impact on expectations during periods of great uncertainty and less of an impact when countries are subject to minor shocks.

Subject: Aging, Capital flows, Education, Inflation, Probit models

Keywords: IMF critic, IMF dummy, IMF program, IMF support, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/261
Stock No:

WPIEA2007261
ISBN:

9781451868241
ISSN:

1018-5941

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