IMF Fiscal Surveillance during the Eurozone Crisis

Abstract

This study analyses the tone and information content of the IMF Article IV Staff Reports during the Eurozone crisis. Researchers create a tone measure denoted WARNING, based on the existing DICTION 7.1 Hardship dictionary. Researchers find that in the run-up to the current credit crises the warnings by the IMF were issued to Luxembourg, Malta, Portugal, and Slovenia. In contrast, the more severely hit countries were not warned by the tone of the IMF Article IV Staff Reports. Researchers also conclude that the IMF interactions were more effective with low-income countries and with other emerging economies than they were with advanced and large emerging economies. Individual countries Article IV Staff assessments for Ireland and Spain indicated the warnings by the IMF were only in the years when the countries were deeply in recession and it was too late to provide any policy guidance.