Examining the effect of IMF conditionality on natural resource policy

Can International Monetary Fund (IMF) lending improve natural resource governance in borrowing countries? While most IMF agreements mandate policy reforms in exchange for financial support, compliance with these reforms is mixed at best. The natural resource sector should be no exception. After all, resource windfalls enable short-term increases in discretionary spending, and office-seeking politicians are often unwilling to forgo this discretion by reforming the oil, gas, or mining sector. I investigate how and when borrowers go against their political interests and establish natural resource funds—a tool often promoted by the IMF—in the wake of a loan agreement. Using text analysis, statistical models, and qualitative evidence from natural resource policy and IMF conditionality for 74 countries between 1980 and 2019, I show that borrowers under an IMF agreement are more likely to create or regulate a resource fund, particularly if the agreement includes binding conditions that highlight the salience of natural resource reforms. This study contributes to extant research by proposing a new method to extract information from IMF conditions, by introducing a novel dataset on country-level natural resource policy, and by identifying under what circumstances international reform efforts can help combat the resource curse.     

Divisia monetary aggregates for Russia: Money demand,GDP nowcasting and the price puzzle

The lack of developed financial markets and well-functioning transmission channels assigns monetary aggregates in emerging economies the potential role of nominal anchor, intermediate target, or informational variable for monetary policy. The effectiveness of this approach relies crucially on the correct measurement of money, which is not fulfilled by the conventional index based on the simple sum of financial assets. This paper calculates alternative Divisia monetary aggregates for Russia over the period 1998–2019, which account for the level of liquidity of a given monetary asset by assigning weights according to the usefulness of that asset for transaction services. Divisia is found to follow a markedly different growth pattern from the simple sum, whereby deviations between the two series are even more pronounced when foreign currency accounts are included. We conduct three empirical exercises to demonstrate the advantages of Divisia over the simple sum. Divisia confirms the stability of the money demand function and reflects portfolio shifts in response to changes in the opportunity cost of money. Divisia-based GDP nowcasting performs better in times of financial turmoil than the simple sum. Lastly, Divisia mitigates the price puzzle phenomenon relative to the conventional measure. We conclude that Divisia monetary aggregates would improve the effectiveness of monetary policy in Russia.     

The democratic (dis)advantage: The conditional impact of democracy on credit risk and sovereign default

Many have argued that democracies are able to make credible commitments to repay their debts and consequently enjoy higher sovereign credit ratings. In contrast to this expectation, I argue that the advantage of democracies in credit ratings is conditional on the countries' level of financial vulnerability and adjustment needs. Because democracies have more diffuse decision-making and are more accountable to the public, they encounter greater difficulty than autocracies in passing unpopular economic adjustment measures. Thus, I argue that democracies with high debt levels and low foreign reserve assets experience worse credit outcomes, whereas democracies with low vulnerability experience more positive outcomes. In a sample of up to 96 developing countries, I show that democracies have worse credit ratings and CDS Spreads and are more likely to default than their autocratic counterparts when foreign reserves are low relative to external debt. Notably, I also show that large debt burdens increase credit risk mainly in more democratic countries. I further test the causal pathway of the democratic advantage by constructing democracy scores of “market-friendly” and “adjustment-difficulty” democracy, finding that democracy worsens debt outcomes due to adjustment difficulty. These findings help to revise and clarify the causal logic surrounding the democratic advantage hypothesis.     

The microfoundation of macroeconomic populism: The effects of economic inequality on public inflation aversion

Previous work on the politics of monetary policy has focused on the role of distributive motives stemming from individual characteristics such as income or factoral/sectoral interests in citizens' formation of monetary policy preferences. However, the existing literature has paid little attention to how a country's overall distributive context, namely, its level of economic inequality, affects citizens' preferences vis-à-vis price stability and employment. This article argues that as inequality pushes more citizens below a society's average income, there is more demand for redistribution through higher employment and increased fiscal spending, each of which can be better supported by expansionary monetary policy. This means that inequality makes citizens more tolerant of inflation. This study uses the International Social Survey Program, the Integrated Values Surveys, and the Comparative Study of Electoral Systems, which together include 293,100 respondents from 53 countries between the years 1976 and 2016 to demonstrate that overall, inequality significantly moderates citizens' inflation aversion.