The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world." Formed in 1944, started on 27 December 1945, at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international monetary system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016[update], the fund had XDR 477 billion (about US$667 billion).Through the fund and other activities such as the gathering of statistics and analysis, surveillance of its members' economies, and the demand for particular policies, the IMF works to improve the economies of its member countries. The organization's objectives stated in the Articles of Agreement are: to promote international monetary co-operation, international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty. IMF funds come from two major sources: quotas and loans. Quotas, which are pooled funds of member nations, generate most IMF funds. The size of a member's quota depends on its economic and financial importance in the world. Nations with greater economic significance have larger quotas. The quotas are increased periodically as a means of boosting the IMF's resources in the form of special drawing rights.The current managing director (MD) and Chairwoman of the IMF is Bulgarian economist Kristalina Georgieva, who has held the post since October 1, 2019. Indian-American economist Gita Gopinath, who previously served as Chief Economist, was appointed as First Deputy Managing Director, effective January 21, 2022. Pierre-Olivier Gourinchas replaced Gopinath as Chief Economist on January 24, 2022.
The COVID-19 market turmoil triggered significant outflows from euro area money market funds (MMFs), reaching nearly 8% of assets under management. By analysing granular data on derivative contracts and MMF activity, we identify a novel shock transmission mechanism: as financial intermediaries use MMFs as cash management vehicles, derivative margin calls can generate MMF flows. Our findings suggest that margin calls faced by euro area non-bank financial intermediaries drove around 45% of the aggregate outflows from EUR-denominated euro area MMFs between February and April 2020, revealing a critical channel through which market shocks propagate.
The 2022 energy price shock, triggered by geopolitical disruptions, prompted governments to implement widespread policy interventions to support firms and accelerate the energy transition. Using nationally representative firm surveys from the United States and Germany, this paper examines how firms adjusted to the shock and their reported responses to fiscal incentives. We document that firms were generally resilient, relying on a combination of price pass-through, margin adjustment, and energy-saving investments. Responses differed across countries: firms in Germany - facing a larger and more persistent shock - were more likely to invest in energy efficiency and reduce energy consumption, while firms in the United States primarily absorbed costs through lower profits. Evidence from input-output simulations suggests that, absent policy intervention, energy-intensive sectors would have faced substantially larger price pressures. We also find that firms with pre-existing plans to reduce greenhouse gas emissions were more likely to report intending to utilize fiscal incentive programs, suggesting that policy targeting and credibility may play an important role in supporting the green transition. Overall, our findings provide descriptive evidence on firms' responses to energy price shocks and announced policy measures, offering insights for the design of targeted and predictable energy and climate policies in an increasingly fragmented geopolitical environment.
This paper studies whether countries benefit from servicing their debts during times of widespread sovereign defaults.Colombia is typically regarded as the only large Latin American country that did not default in the 1980s.Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts.We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs.We show that the case of Colombia is more complex than what it is commonly assumed.Although Colombia had to re-profile its debts, high-level political support from the US allowed Colombia do to so outside the standard framework of an IMF program.Our counterfactual analysis shows that in the short to medium run, Colombia benefited from avoiding an explicit default.Specifically, we find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries.We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits.Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains.
Several emerging markets (EMs) have graduated from the “original sin” and are able to borrow abroad in their local currency. Using a two-country model this paper shows that the shift from foreign currency to local currency debt can reduce the original sin concern, but does not eliminate it. Instead, it morphs the original sin into a "redux” (Carstens and Shin (2019)). As long as EMs rely on foreign intermediated funding, local currency borrowing shifts the currency mismatch problem to the balance sheet of financially constrained global lenders. As exchange rate movements significantly affect lenders’ capacity to lend, this still leaves EMs vulnerable to sharp capital flow reversals, as in the original sin case. We document empirical evidence in favor of this prediction of the model using data on currency composition of external debt of EMs. We also use the model to show that a large domestic investor base is key to eliminating the original sin, and foreign exchange intervention proves to be a useful addition to the policy toolkit of central banks.
The development and deployment of large language models like ChatGPT worldwide require the expansion of data centers, which consume substantial amounts of electricity. Using descriptive statistics and a multi-country computable general equilibrium model (IMF-ENV), we examine how AI-driven data center growth affects electricity consumption, electricity prices, and carbon emissions. Our analysis of national accounts reveals AI-producing sectors in the U.S. have grown at nearly triple the rate of the private non-farm business sector, with firm-level evidence showing electricity costs for vertically integrated AI companies nearly doubled between 2019-2023. Simulating AI scenarios in the IMF-ENV model based on projected data center power consumption up to 2030, we find the AI boom will cause manageable but varying increases in energy prices and emissions depending on policies and infrastructure constraints. Under scenarios with constrained growth in renewable energy and limited expansion of transmission infrastructure, U.S. electricity prices could increase by 8.6%, while U.S. and global carbon emissions would rise by 5.5% and 1.2% respectively under current policies. Our findings highlight the importance of aligning energy policies with AI development to support this technological revolution, while mitigating environmental impacts.
