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Patrick A. Imam
In recent years, recommendations for countries to unilaterally dollarize/eurorize have become common, particularly when the countries lack economic credibility. After exploring the characteristics of dollarizing/eurorizing economies, we look at the merits and costs of unilateral eurorization for Cape Verde, a highly tourism based economy that has become increasingly integrated into the euro-zone area and that has a strong macroeconomic track record. We illustrate that neither the benefits nor the costs of unilateral eurorization are large and conclude that there is no compelling case to change the current exchange rate arrangement at this point in time. Econometrically, we assess the characteristics of dollarized economies and demonstrate that few of them apply to Cape Verde, further confirming that Cape Verde does not fit the pattern of most dollarizing countries.
Patrick A. Imam
We describe unique aspects of microstates-they are less diversified, suffer from lumpiness of investment, they are geographically at the periphery and prone to natural disasters, and have less access to capital markets-that may make the current account more vulnerable, penalizing exports and making imports dearer. After reviewing the "old" and "new" view on current account deficits, we attempt to identify policies to help reduce the current account. Probit regressions suggest that microstates are more likely to have large current account adjustments if (i) they are already running large current account deficits; (ii) they run budget surpluses; (iii) the terms of trade improve; (iv) they are less open; and (v) GDP growth declines. Monetary policy, financial development, per capita GDP, and the de jure exchange rate classification matter less. However, changes in the real effective exchange rate do not help drive reductions in the current account deficit in microstates. We explore reasons for this and provide policy implications.
Patrick A. Imam

We analyze the effect of IMF programs on economic agents' expectations about the economy in transitional countries using survey data from the Central and Eastern Eurobarometer poll, an annual general public survey monitoring the evolution of public opinion from 1990 to 1997. Previous studies, in contrast, have looked at indirect measures, such as capital flows or yield spreads, to assess the impact of IMF programs on economic expectations. Using a multinomial probit model, we find that IMF loans appear to have a strong effect on agent expectations in the early years, through the inflow of real money, and through the signaling effect. IMF programs during periods of collapsing growth appear to reinforce underlying expectations for the future; they are associated with positive expectations for those with an optimistic outlook and negative expectations for those with a negative outlook. Once recovery is underway, and economic uncertainty diminishes, it appears that IMF programs cease to have a statistically significant effect on the expectations of economic agents. This suggests that IMF programs have the biggest impact on expectations during periods of great uncertainty and less of an impact when countries are subject to minor shocks.

Patrick A. Imam
We analyze the effect of IMF programs on economic agents' expectations about the economy in transitional countries using survey data from the Central and Eastern Eurobarometer poll, an annual general public survey monitoring the evolution of public opinion from 1990 to 1997. Previous studies, in contrast, have looked at indirect measures, such as capital flows or yield spreads, to assess the impact of IMF programs on economic expectations. Using a multinomial probit model, we find that IMF loans appear to have a strong effect on agent expectations in the early years, through the inflow of real money, and through the signaling effect. IMF programs during periods of collapsing growth appear to reinforce underlying expectations for the future; they are associated with positive expectations for those with an optimistic outlook and negative expectations for those with a negative outlook. Once recovery is underway, and economic uncertainty diminishes, it appears that IMF programs cease to have a statistically significant effect on the expectations of economic agents. This suggests that IMF programs have the biggest impact on expectations during periods of great uncertainty and less of an impact when countries are subject to minor shocks.
Patrick A. Imam

We describe unique aspects of microstates-they are less diversified, suffer from lumpiness of investment, they are geographically at the periphery and prone to natural disasters, and have less access to capital markets-that may make the current account more vulnerable, penalizing exports and making imports dearer. After reviewing the "old" and "new" view on current account deficits, we attempt to identify policies to help reduce the current account. Probit regressions suggest that microstates are more likely to have large current account adjustments if (i) they are already running large current account deficits; (ii) they run budget surpluses; (iii) the terms of trade improve; (iv) they are less open; and (v) GDP growth declines. Monetary policy, financial development, per capita GDP, and the de jure exchange rate classification matter less. However, changes in the real effective exchange rate do not help drive reductions in the current account deficit in microstates. We explore reasons for this and provide policy implications.