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 in Latin America
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)
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) (Under review)
The International Monetary Fund (IMF) has dual institutional roles: a steward of international financial stability and a global banker safeguarding the resources of its sovereign shareholders. But, how does the IMF behave when its balance sheet becomes exposed to higher-than-usual credit risk, creating a financial catch-22? We expect that 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, but prioritizes alleviating global market turmoil over program compliance. When market contagion is contained, however, the IMF is more likely to act as a traditional banker, suspending programs for non-compliance. Ironically, given its tendency to forgive non-compliance as a lender of last resort, our theoretical framework suggests that the Fund intensifies the moral hazard problem it faces as a global banker.
We test our theoretical priors by conducting a comparative case study analysis of IMF decision-making over time 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 the lending stances of IMF directors evolve in response to changes in global contagion risk. By examining the IMF’s own institutional agency under high financial risk, this study offers new insights for the study of globalization, international organization, and the politics of domestic reform