Category: Stephen B. Kaplan

Global Contagion and IMF Credit Cycles: A Lender of Partial Resort?

2021, Authors, Stephen B. Kaplan, Working Papers

July 2021

Stephen B. Kaplan (George Washington University)
Sujeong Shim (University of Wisconsin-Madison)

IIEP working paper 2021-13

Abstract: The International Monetary Fund (IMF) has an incomplete governance architecture characterized by insufficient resources to fulfill its global financial stability mandate. We argue this institutional incompleteness influences how the IMF balances tensions between systemic risks and moral hazard, and when it surprisingly exits lending relationships. During high global contagion periods, the IMF targets stabilizing systemic risks to fulfill its mandate, granting large loans and overlooking non-compliance with conditionality. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, extending smaller loans with stricter conditionality, and willingly cuts financial ties to preserve its reputation and resources for future crises. Employing a comparative case analysis of IMF decision-making for Argentina (1998-2001) and Greece (2010-2015), we find evidence supporting our theoretical priors from content analysis of IMF executive board meeting minutes, complementary archival evidence, and field research interviews. These findings have important implications for the IMF, institutionalism, and development.

JEL Codes: O1, O16, O19, 052, 054, F21, F33, F34, F42, F49, F50, F55, F60, F65

Key Words: IMF, lender of last resort, financial crises, international financial risk, contagion risk, Argentina, Greece 

Short and long-run distributional impacts of COVID-19 in Latin America

Economics of Ultra-Poverty Events, Global Economic Governance Events, Past Events, Stephen B. Kaplan

Monday, October 12, 2020
12:30 pm – 2:00 pm EDT
WebEx

“Facing Inequality” is a webinar series hosted by the Institute for International Economic Policy. This virtual series focuses on current and emerging inequality issues in the U.S. and around the globe. The series brings attention to aspects of inequality being made increasingly relevant by the current COVID-19 pandemic and associated crises. It is organized under the stewardship of IIEP Director James Foster, Oliver T. Carr, Jr. Professor of International Affairs and Professor of Economics, and IIEP Faculty Affiliate Trevor Jackson, Assistant Professor of History. The series is co-sponsored by the GW Interdisciplinary Inequality Series, co-organized by Prof. Jackson from the Department of History and Prof. Bryan Stuart from the Department of Economics.

This was the eighth event in the facing inequality series. Our distinguished speakers, Nora Lustig and Guido Neidhöfer discussed their paper, “Short and long-run distributional impacts of COVID-19 in Latin America ” (Lustig, Neidhöfer and Tommasi). They simulate the short- and long-term distributional consequences of COVID-19 in Argentina, Brazil, Colombia and Mexico. They show that the short-term impact on income inequality and poverty can be very significant but that additional spending on social assistance has a large offsetting effect in Brazil and Argentina. The effect is much smaller in Colombia and nil in Mexico, where there has been no such expansion. To project the long-term consequences, they estimate the impact of the pandemic on human capital and its intergenerational persistence. Hereby, they use information on school lockdowns, educational mitigation policies, and account for educational losses related to parental job loss. Their findings show that in all four countries the impact is strongly asymmetric and affects particularly the human capital of the most vulnerable. Consequently, educational inequality and inequality of opportunity are expected to increase substantially, in spite of the mitigation policies.

 

About the Speakers:

Picture of Panelist Nora Lustig Nora Lustig is Samuel Z. Stone Professor of Latin American Economics and the founding Director of the Commitment to    Equity Institute (CEQ) at Tulane University. She is also a Nonresident Senior Fellow at the Brookings Institution, the  Center for Global Development and the Inter-American Dialogue. Professor Lustig’s research focuses on economic development, inequality and social policies with emphasis on Latin America. Her recent publication Commitment to Equity Handbook: Estimating the Impact of Fiscal Policy on Inequality and Poverty is a step-by-step guide to assessing the impact of taxation and social spending on inequality and poverty in developing countries. Prof. Lustig is a founding member and President Emeritus of the Latin American and Caribbean Economic Association (LACEA) and was a co-director of the World Bank’s World Development Report 2000, Attacking Poverty. She serves on the editorial board of the Journal of Economic Inequality and is a member of the Society for the Study of Economic Inequality’s Executive Council. Prof. Lustig served on the Atkinson Commission on Poverty, the High-level Group on Measuring Economic Performance and Social Progress, and the G20 Eminent Persons Group on Global Financial Governance. She received her doctorate in Economics from the University of California, Berkeley.

Picture of Panelist Guido Neidhöfer Guido Neidhöfer is an advanced researcher in the Labor Markets and Human Resources department at ZEW Mannheim, Germany, as well as a fellow at the College for Interdisciplinary Educational Research (CIDER), visiting scholar at the Center for Distributive, Labor and Social Studies (CEDLAS) of the National University of La Plata, and an associated researcher of the Centro de Estudios para el Desarrollo Humano (CEDH) of the Universidad de San Andres in Argentina. His research focuses on the causes and consequences of economic inequality, social mobility, education and migration.

 

About the Discussants:

Picture of Professor Stephen. B. Kaplan Stephen B. Kaplan is an Associate Professor of Political Science and International Affairs. Professor Kaplan’s research and teaching interests focus on the frontiers of international and comparative political economy, where he specializes in the political economy of global finance and development, the rise of China in the Western Hemisphere, and Latin American politics.

Professor Kaplan joined the GWU faculty in the fall of 2010 after completing a postdoctoral research fellowship at the Niehaus Center for Globalization and Governance at Princeton University and his Ph.D at Yale University. While at Yale, Kaplan also worked as a researcher for former Mexican President Ernesto Zedillo at the Yale Center for the Study of Globalization. Prior to his doctoral studies, Professor Kaplan was a senior economic analyst at the Federal Reserve Bank of New York, writing extensively on developing country economics, global financial market developments, and emerging market crises from 1998 to 2003.

Picture of Michael Wolfson Dr. Michael C. Wolfson received his B.Sc with honours from University of Toronto jointly in mathematics, computer science and economics in 1971, and then a Ph.D. from Cambridge in economics in 1977.  He retired as Assistant Chief      Statistician, Analysis and Development (which included the Health Statistics program and the central R&D function) at Statistics Canada in 2009.  He was awarded a Canada Research Chair in Population Health Modeling in the Faculty of      Medicine at the University of Ottawa for 2010-2017.  Prior to joining Statistics Canada, he held increasingly senior positions in the Treasury Board Secretariat, the Department of Finance, the Privy Council Office, the House of Commons, and the Deputy Prime Minister’s Office.  While a senior public servant, he was also a founding Fellow of the Canadian Institute for Advanced Research Program in Population Health (1988-2003). He is a Fellow of the Canadian Academy of Health Sciences, an elected member of the International Statistical Institute, and a member of the recently created Canadian Statistics Advisory Council.

More From This Series

The IMF’s Financial Catch 22: Global Banker or Lender of Last Resort?

2020, Stephen B. Kaplan, Working Papers

August 2020

Stephen B. Kaplan (George Washington University), Sujeong Shim (University of Wisconsin-Madison)

IIEP working paper 2020-18

Abstract: 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 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, 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 its moral hazard problem.

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 international political economy and international organizations.

JEL Codes: 

Key Words: IMF; lender of last resort; financial crises, institutional financial risk; contagion risk; Argentina; Greece

The Rise of Patient Capital: The Political Economy of Chinese Global Finance

2018, Stephen B. Kaplan, Working Papers

July 2018

Stephen Kaplan

IIEP Working Paper 2018-2

Abstract: As the United States has retreated from its lead role in globalization – first because of the 2008 financial crisis, and now under President Donald Trump’s leadership – China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. What are the implications? I contend that China’s state-led capitalism is an important form of patient capital, characterized by a longerterm horizon. While technically classified as mobile capital, its higher risk tolerance and geopolitical shrewdness make state-owned capital less likely to swiftly exit debtor countries. Compared to traditional mobile capital, debtor governments thus gain more policy freedom, particularly during hard times when Western creditors might otherwise impose austerity and other onerous policy conditions. Employing an originally constructed dataset, the China Global Financial Index, I conduct an econometric test across 15 Latin American countries from 1990-2015. I find that left governments are more likely to borrow from China. However, notwithstanding this initial creditor choice, Chinese state-to-state lending then uniformly leads to higher budget deficits. It endows governments with more fiscal space to intervene in their economies by reducing their reliance on conditionality-linked Western financing. These results suggest that Chinese financing could be a development opportunity, but only if governments invest wisely. Otherwise, by lending without policy conditions, China may be encouraging developing country governments to spend without bounds, sowing the seeds for future debt problems.

How Presidents Make Economic Policy in Times of Crisis” feat. Alejandro Bonvecchi

Forum, International Trade Events, Jay Shambaugh, Past Events, Stephen B. Kaplan

How Presidents Make Economic Policy in Times of Crises

Thursday, February 16, 2017

12:00 to 2:00pm

 

Elliott School of International Affairs
Lindner Commons, 6th floor
1957 E Street NW
Washington, DC 20052

This project argues that presidents organize decision-making to respond to economic crises not driven by personality or institutional constraints, but rather by cognitive contexts. The higher the frequency of crises, the more inclined the president to use hierarchical, rather than collegial, decision-making processes. The argument is tested comparing cases in the US and Argentina.

Alejandro Bonvecchi holds a BA in Sociology from the University of Buenos Aires and a Ph.D. in Government from the University of Essex. He is an Assistant Professor at the Torcuato Di Tella University in Buenos Aires and an Adjunct Research of the National Council for Scientific and Technical Research in Argentina, where he works on presidential and legislative politics and the political economy of economic policymaking. He has published four books, and his work has appeared in Presidential Studies Quarterly, Legislative Studies Quarterly, Publius, Latin American Politics and Society, and Journal of Politics in Latin America.

View the presentation here

Discussants

Stephen Kaplan, Associate Professor of Political Science and International affairs at The George Washington University

Stephen B. Kaplan is an Assistant Professor of Political Science and International Affairs. Professor Kaplan’s research and teaching interests focus on the frontiers of international and comparative political economy, where he specializes in the political economy of global finance and development, the rise of China in the Western Hemisphere, and Latin American politics. Professor Kaplan joined the GWU faculty in the fall of 2010 after completing a postdoctoral research fellowship at the Niehaus Center for Globalization and Governance at Princeton University and his Ph.D at Yale University. While at Yale, Kaplan also worked as a researcher for former Mexican President Ernesto Zedillo at the Yale Center for the Study of Globalization. Prior to his doctoral studies, Professor Kaplan was a senior economic analyst at the Federal Reserve Bank of New York, writing extensively on developing country economics, global financial market developments, and emerging market crises from 1998 to 2003. He received his B.A in International Relations and Economics from Tufts University, and an M.S in International Economic Development from Georgetown University.

Jay Shambaugh, Professor of Economics and International Affairs at The George Washington University

Jay Shambaugh is a professor of economics and international affairs at the George Washington University. He is the director of the Institute for International Economic Policy. Professor Shambaugh’s area of research is macroeconomics and international economics. His work includes analysis of the interaction of exchange rate regimes with monetary policy, capital flows, and trade flows as well as studies of international reserves holdings, country balance sheet exchange rate exposure, the cross-country impact of fiscal policy, and the current crisis in the euro area. In addition to his book, Exchange Rate Regimes in the Modern Era (MIT Press, 2009), Shambaugh has published in The American Economic Review, The Quarterly Journal of Economics, and other leading journals. Prior to joining the faculty at George Washington, Shambaugh taught at Georgetown and Dartmouth and served as first Senior Economist for International Economics and then Chief Economist at the White House Council of Economic Advisers. He is also a Faculty Research Fellow at the NBER and a visiting scholar at the IMF. Shambaugh received his Ph.D. in economics from the University of California at Berkeley, an M.A. from the Fletcher School at Tufts, and a B.A. from Yale University.

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