The IMF Approach to Economic Stabilization

Author: Mr. Miguel A Savastano and Mr. Michael Mussa

This paper explains the IMF approach to economic stabilization. It argues that a Fund-supported program is a process, comprising six broadly defined phases, that evolves along a multiplicity of potential pathways. The paper discusses the three-pronged approach to stabilization at the core of all IMF-supported programs, stresses the iterative character of "financial programming," and explains the rationale for setting quantitative performance criteria for fiscal and monetary policy in IMF-supported arrangements. A main theme is that IMF-supported programs contain a great deal of flexibility to respond both to differences in circumstances and to changes in conditions in individual cases.

Volume/Issue: Volume 1999 Issue 104

Publication date: July 1999

ISBN: 9781451852745

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Topics covered in this book

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Business and Economics , Banks and Banking , Money and Monetary Policy , Public Finance , WP , IMF program , IMF approach , IMF conditionality , IMF-supported program , IMF arrangement , IMF staff , IMF-supported programs , economic stabilization , quantitative approach , financial support , IMF prescription , IMF mandate , heterogenous IMF membership , IMF surveillance , expiring IMF program , IMF support , Domestic credit , International reserves , Monetary base , Exchange rates , Eastern Europe

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Summary

This paper explains the IMF approach to economic stabilization. It argues that a Fund-supported program is a process, comprising six broadly defined phases, that evolves along a multiplicity of potential pathways. The paper discusses the three-pronged approach to stabilization at the core of all IMF-supported programs, stresses the iterative character of “financial programming,” and explains the rationale for setting quantitative performance criteria for fiscal and monetary policy in IMF-supported arrangements. A main theme is that IMF-supported programs contain a great deal of flexibility to respond both to differences in circumstances and to changes in conditions in individual cases.