Keeping capital flowing: The role of the IMF

In this paper, we examine the role of the International Monetary Fund (IMF) in maintaining the access of emerging market economies to international capital markets. We find evidence that both macroeconomic aggregates and capital flows improve following the adoption of an IMF programme, although they may initially deteriorate somewhat. Consistent with theoretical predictions and earlier empirical findings, we find that IMF programmes are most successful in improving capital flows to countries with bad, but not very bad, fundamentals. In such countries, IMF programmes are also associated with improvements in the fundamentals themselves.