The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.


The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

The Fourth Annual IMF Research Conference was held in Washington, D.C., on November 6–7, 2003. The conference had an overarching theme of capital flows and macroeconomic cycles. The discussion focused on the management of macroeconomic policy in the presence of large capital flows, and on issues related to the effects of free capital mobility and increased financial integration. The Mundell-Fleming lecture was delivered by Sebastian Edwards of UCLA. The conference included a panel discussion on “Capital Flows Cycles: Old and New Challenges” with Agustin Carstens, Deputy Managing Director of the IMF; Jeffry Frieden, Professor of Government at Harvard University; Peter Garber, Global Strategist at Deutsche Bank; Morris Goldstein, Director of the Institute for International Economics; and Zanny Minton-Beddoes of The Economist. The conference agenda and a short description of the papers follow. All the conference papers and a transcript of the panel discussion are available at the IMF’s website at

Mundell-Fleming Lecture

Current Account Imbalances: History, Trends, and Adjustment Mechanisms

Sebastian Edwards (UCLA)

This paper analyzes the historical behavior of current account imbalances and the patterns of adjustment followed by countries with large balance of payments disequilibria. The focus is on the connection between adjustment and exchange rate changes and on the costs of current account deficit reversals, and their connection with “sudden stops” of capital inflows. In that context, the paper analyzes whether openness, the extent of dollarization, and the exchange rate regime affect the costs of reversals.


The Real Effects of Financial Integration

Jean Imbs (London Business School and CEPR)

This paper studies why, contrary to theory, fluctuations in GDP are more synchronized internationally than fluctuations in consumption. When financial integration increases, risk sharing synchronizes both consumption and GDP growth rates, with no effect on the discrepancy. Hence, the puzzle does not arise from failure to internationally diversify risk, but rather from the fact that financial flows also affect output correlations. Furthermore, while the bulk of risk sharing works via equities, long-term debt flows affect GDP correlations.

Are Immigrant Remittance Flows a Source of Capital for Development?

Ralph Chami (IMF), Connel Fullenkamp (Duke University), and Samir Jahjah (IMF)

This paper explores the role of remittances in developing countries. It develops a framework where, because of asymmetric information and economic uncertainty, remittances involve a moral hazard problem. The implication is that remittances may have a negative effect on economic growth. The paper confirms this prediction with evidence from a panel of countries.

Testing the Portfolio Channel of Contagion: The Role of Risk Aversion

Fernando A. Broner (University of Maryland) and R. Gaston Gelos (IMF)

This paper examines whether changes in investors’ risk aversion in response to gains and losses can explain international contagion. Using investment fund-level data, it shows that funds react to shocks, reducing their exposure to countries in which they are “overweight” and increasing their exposure to countries in which they are “underweight.” It, then, constructs a matrix that can help in predicting the patterns of contagion using information about which countries share a set of overexposed funds.

Capital Account Liberalization, Investment, and the Invisible Hand

Anusha Chari (University of Michigan) and Peter Blair Henry (Stanford University and NBER)

This paper presents the first firm-level analysis of capital account liberalization and investment in developing countries. The paper uses a model of Tobin’s q to decompose the firms’ postliberalization changes in investment into (1) the country-specific change in the risk-free rate; (2) firm-specific changes in equity premiums; and (3) firm-specific changes in expected future earnings. The results stand in contrast to the view that investment and fundamentals are unrelated during liberalization episodes.

Procyclical Government Spending in Developing Countries: The Role of Capital Market Imperfections

Alvaro Riascos (Banco de la República, Colombia) and Carlos A. Végh (UCLA and NBER)

This paper shows that differences in the cyclically of government consumption across countries are consistent with a standard neoclassical model of fiscal policy. It shows that, with complete markets, the correlation of government consumption and output is zero (as in G-7 countries), while, with only risk-free debt, this correlation is typically positive. This suggests that the lack of sufficiently developed financial markets significantly affects how fiscal policy is carried out in developing countries.

The Trilemma in History: Trade-offs Among Exchange Rates, Monetary Policies, and Capital Mobility

Maurice Obstfeld (University of California at Berkeley, NBER, and CEPR), Jay C. Shambaugh (Dartmouth College), and Alan M. Taylor (University of California at Davis and NBER)

This paper examines whether the monetary policy trilemma, which imposes a stark trade-off among exchange stability, monetary independence, and capital market openness, is actually supported by historical data. Looking at the coherence of international interest rates over more than 130 years, it finds that the constraints implied by the trilemma are largely borne out by history.

Exchange Rate Policy and Management of Official and Private Capital Flows in Africa

Edward Buffie (Indiana University), Christopher Adam (Oxford University), Stephen O’Connell (Swarthmore College), and Catherine Pattillo (IMF)

This paper focuses on the monetary and exchange rate policy response to persistent shocks to aid flows that, although beneficial in the long run, can produce dramatic macroeconomic management problems in the short run. The paper finds that when the credibility of policymakers’ commitment to low inflation is firm, some degree of dirty floating, with little or no sterilization of increases in the monetary base, is the most attractive approach in the short run.

A Gravity Model of Sovereign Lending: Trade, Default and Credit

Andrew K. Rose (University of California at Berkeley) and Mark M. Spiegel (Federal Reserve Bank of San Francisco)

This paper develops a simple theoretical model that captures the idea that countries service their external debts because of the fear that default might lead to shrinkage of international trade. It then tests whether creditors systematically lend more to countries with whom they share closer trade links.

How Private Creditors Fared in Emerging Debt Markets. 1970–2000

Christoph Klingen (IMF), Beatrice Weder (University of Mainz), and Jeromin Zettelmeyer (IMF)

This paper estimates ex post returns to emerging market debt. It finds that, for the period 1970–2000, these returns were about the same as that of a 10-year U.S. treasury bond, reflecting the 1980s debt crisis and the high returns of the 1990s. Since 1986, returns have been less volatile than emerging market equity returns, but more volatile than those on U.S. corporate or high-yield bonds, and have not been significantly correlated with U.S. or world stock markets.

Call for Papers IMF Jacques Polak Annual Research Conference

The International Monetary Fund will hold its Fifth Annual Research Conference at its headquarters in Washington, D.C., on November 4–5, 2004. The conference provides a forum for discussing innovative research in international economics, undertaken both by IMF staff and by outside economists, and to facilitate the exchange of views among researchers and policymakers.

This year’s conference will be devoted to Policies, Institutions, and Instability. Possible topics include (1) the effect of political institutions on economic instability; (2) the corporate sector origins of macroeconomic vulnerability; (3) financial sector collapses, including both causes and effects; (4) debt and default; and (5) general equilibrium models of crises. Papers that do not fit into these categories, but that are related to the main theme of the conference, are also welcome.

Interested contributors should submit a two-page proposal to the Program Committee, including the title of the paper, the author(s)’ affiliation and contact information, the main questions to be examined, the most relevant literature, the intended contribution of the paper, and the possible data sets and methodology to be employed, A detailed outline or preliminary draft of a paper is encouraged. Authors are also encouraged to provide a list of up to three of their publications or working papers or a copy of their vitae.

Please submit your proposals (in a Word or PDF file) by April 15, 2004 (e-mail to Please use the contact author’s name as the name of the file. The Program Committee will evaluate all proposals in terms of originality, analytical rigor, and policy relevance and will communicate its decision by late April. A 12-page work-in-progress draft will be required by June 30, 2004, to ensure adequate progress toward completion.

IMF Research Bulletin March 2004
Author: International Monetary Fund. Research Dept.