WORKING PAPERS

How does the effectiveness of fiscal stimulus depend on the composition of firms where the stimulus takes place? This paper shows that the local fiscal multiplier increases with the share of small firms, implying multipliers of 0.95-2.15 in the interquartile range. Using firm-level data, I document that small firms are more responsive than large firms to government spending. 

Europe’s defense spending is undergoing a historic shift. With NATO members expected to reach 2% of GDP and discussions underway to increase targets to 5% by 2035, this paper examines the possible macroeconomic consequences of such rearmament using two complementary approaches. First, using an annual panel dataset covering 27 EU countries over the period 1989–2023, we show that past national defense spending has stimulated economic activity in the short term, and entailed sizable cross-border spillovers. Importantly, we find that spending multipliers varied considerably across countries and over time: they tended to be larger when import intensity is low, fiscal space (captured by sovereign yields spread) is ample, and public investment efficiency is high. Second, a novel high-frequency dataset of monthly defense procurement contracts from Opentender, covering EU-27 countries from 2009 to 2023, allows for improved causal identification using fiscal news and instrumental variables based on European aggregate defense procurement and each country’s geographic proximity to major adversaries. The estimates corroborate the positive effects of defense spending on output and show that equipment procurement has the strongest relative impact. Given the larger and more synchronized nature of the current European defense buildup relative to past national episodes in our sample, multipliers might fall below historical estimates, especially if monetary policy is not accommodative. 

Featured in WEO Analytical Chapter 2, April 2026: Box 2.2. Spillovers from Defense Spending 

SUERF Policy Brief (European Money and Finance Forum) 

Large natural disasters create sharp macroeconomic pressures by damaging productive capacity, weakening fiscal revenues, raising reconstruction needs, and generating external financing gaps. This paper studies whether rapid emergency financing can support recovery after such shocks. We examine standalone IMF post-disaster financing through ENDA, the RCF, and the RFI using a synthetic control approach. Disaster episodes receiving IMF support are compared with similar untreated episodes matched on pre-disaster growth, disaster severity, and country characteristics. The results suggest that IMF-supported episodes recover faster than synthetic counterfactuals, with output gains lasting up to three years. These gains are accompanied by higher government spending, larger grant inflows, stronger imports, and a more front-loaded increase in public debt. The findings are consistent with emergency financing relaxing liquidity constraints, supporting countercyclical fiscal policy, and catalyzing external support, while highlighting the need for credible medium-term fiscal frameworks after recovery.

This paper examines the macro-criticality of water resources in the context of climate change. The paper maps out channels through which water resources affect the macro-fiscal and balance of payments positions and develops an understanding of macro-fiscal exposure based on empirical evidence. It also synthesizes emerging insights from IMF-supported operations and capacity development activities, thereby clarifying the rationale and scope for IMF engagement in water-related policy reforms. 

This paper describes a macroeconomic framework integrating disasters in the analysis of growth and long-term economic resilience. 

We find that a climatic disaster drops monthly economic activity in most countries in the region of around 0.5 to 1 percentage points on impact, with persistent effects on the level of GDP. In addition, remittances (transfers from family living abroad) increase for most countries in response to a extreme climate event, acting as a shock absorber. 

How sizable are the potential gains from improving health spending efficiency—in terms of freeing up resources and delivering better health outcomes—? What can policymakers do to boost it? This paper estimates health spending efficiency across countries and finds sizable differences in efficiency across countries, in particular among emerging and developing countries compared to advanced economies.