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The political economy of IMF forecasts

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Abstract

We investigate the political economy of IMF forecasts with data for 157 countries (1999–2005). Generally, we find evidence of forecast bias in growth and inflation. Specifically, we find that countries voting with the United States in the UN General Assembly receive lower inflation forecasts as domestic elections approach. Countries with large loans outstanding from the IMF also receive lower inflation forecasts, suggesting that the IMF engages in “defensive forecasting.” Finally, countries with fixed exchange rate regimes receive lower inflation forecasts, suggesting the IMF desires to preserve stability as inflation can have detrimental effects under such an exchange rate regime.

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Authors and Affiliations

  1. KOF Swiss Economic Institute, ETH Zürich, Weinbergstrasse 35, 8092, Zürich, Switzerland

    Axel Dreher

  2. CESifo, Munich, Germany

    Axel Dreher

  3. Department of Economics, University of Milano-Bicocca, Piazza Ateneo Nuovo 1, U6, 20126, Milano, Italy

    Silvia Marchesi

  4. Department of Political Science, Yale University, 124 Prospect Street, New Haven, CT, 06520-8301, USA

    James Raymond Vreeland

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  1. Axel Dreher
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Dreher, A., Marchesi, S. & Vreeland, J.R. The political economy of IMF forecasts. Public Choice 137, 145–171 (2008). https://doi.org/10.1007/s11127-008-9318-6

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