My research interests include international economic organizations, particularly, the International Monetary Fund (IMF), financial and monetary policies, economic reform/crisis, domestic politics, and public opinion. The following are selected works in progress.
Who is Credible? Government Popularity and the Catalytic Effect of IMF Lending (Under review)
In this paper, I explain variations in private international investors’ reactions to International Monetary Fund (IMF) programs (“the catalytic effect”). Focusing on a borrower’s domestic politics, I argue that a borrower government’s popularity is an important cue for investors about its ability to implement essential IMF conditionality. Therefore, investors react more favorably to more popular IMF borrowers. However, the effect of government popularity on investor behavior decays over time: it provides the strongest impact at the beginning of a Fund program, when investors have less information about the IMF program’s success. I demonstrate the plausibility of the theory through interviews with IMF officials and international investors. Then, using annual data from up to 52 emerging market economies from 1998 to 2017, I find robust statistical evidence supporting these claims after addressing the endogeneity issues and selection bias inherent in IMF programs: an IMF program alone does not restore investor confidence. Rather, an IMF program with extensive conditionalities carried out by a popular government does. My findings have important implications for the study of credible commitment and international organizations and the politics of international finance.
Credibility in International Negotiation: Government Popularity and IMF lending (draft available upon request)
The success of International Monetary Fund (IMF) programs largely depends on the borrowing country’s credibility. But, how does the Fund know if a country is credibly committed to its program? My research demonstrates that the Fund takes the domestic public’s evaluations of their government as a signal of the government’s credibility. Governments with high approval ratings have the political capacity to implement and maintain IMF programs. Unpopular governments, on the other hand, lack the political capacity to credibly commit to implementing IMF conditionality. Concerned with the program’s success prospects, the Fund provides smaller loans with more stringent conditions for more unpopular governments. I gathered data on the relative size of IMF loans for 86 programs (1980-2014) and conditionality for 54 programs (1992-2014) for Latin American countries. The evidence from statistical tests reveals that as the borrowing government’s approval rating increases, IMF deals get sweeter.
The Trilemma and Trade Policy: The Monetary and Financial Roots of Constrained Protectionism (with Mark Copelovitch and Jon Pevehouse) (draft available upon request)
We argue that countries’ monetary and financial commitments are a key determinant of their use of “constrained protectionism” – temporary trade barriers (TTBs) that are legal within the WTO-based multilateral trade regime – and of countries’ involvement in WTO disputes. In line with the Mundell-Fleming trilemma, governments who are committed to fixed exchange rates and capital account openness face greater constraints on their macroeconomic policy autonomy. We argue that these government have strong domestic political incentives to use TTBs such as anti-dumping and safeguard duties. These policies, in turn, increase the likelihood that a country will be targeted within the WTO dispute settlement mechanism (DSM). We further argue that this is particularly true when countries are experiencing more severe balance of payments problems.
The IMF’s Financial Catch 22:
Global Banker or Lender of Last Resort? (with Stephen B. Kaplan) (draft available upon request)
The International Monetary Fund (IMF) has dual institutional roles: a steward of international financial stability, but also a constrained creditor that must safeguard the resources of its sovereign shareholders. Faced with limited financial resources, under what conditions does the IMF fulfill its role as an international lender of last resort (ILLR)? By comparison, are there periods of time when the IMF chooses to prioritize the financial health of its balance sheet over its ILLR? We expect the IMF varies its lending behavior, based on the nature of sovereign credit crises. When there is high contagion risk, the IMF aims to preserve global financial stability as a lender of last resort by extending large loans, notwithstanding its balance sheet strains. The IMF employs policy conditionality to hedge its lending risk over the long-term, but prioritizes alleviating global market turmoil over program compliance. When market contagion is contained, however, the IMF is more likely to strengthen its own financial resilience to preserve its reputation as an ILLR and to save its resources for the next global or regional crisis. Under low contagion risk, the IMF is more likely to limit its loan size and enforce conditionality, providing the Fund with an exist strategy (i.e. borrower non-compliance) for dissolving its lending relationships with highly indebted countries.
We test our theoretical priors by conducting a comparative case study analysis of IMF decision-making examining over time-variation for two of its largest borrowers: Argentina and Greece. Leveraging volumes of hundred-paged minutes from IMF executive board meeting archives and extensive field research interviews, we illustrate how the lending stances of IMF directors evolve in response to changes in global contagion risk. By examining the IMF’s own institutional agency as a constrained ILLR, we advance the political economy literature and develop a framework for understanding the IMF’s own perceptions of global contagion risk.