Lecturer/Assistant Professor
School of Political Science and International Studies
University of Queensland
Michael A. Gavin
Publications
Michael A. Gavin and Mark Manger (2023). "Populism and de facto central bank independence",
Comparative Political Studies, 56(8), pp. 1189–1223. Supplementary appendix. Data.
Although central bank independence is a core tenet of monetary policymaking, it remains politically contested: In many emerging markets, populist governments are in frequent public conflict with the central bank. At other times, the same governments profess to respect the monetary authority’s independence. We model this conflict drawing on the crisis bargaining literature. Our model predicts that populist politicians will often bring a nominally independent central bank to heel without having to change its legal status. To provide evidence, we build a data set of public pressure on central banks by classifying over 9000 analyst reports using machine learning. We find that populists are more likely than non-populists to exert public pressure on the central bank, unless checked by financial markets, and also more likely to obtain interest rate concessions. Our findings underscore that de jure does not equal de facto central bank independence in the face of populist pressures
Michael A. Gavin (2020). ``Global club goods and the fragmented global financial safety net,'' International Studies Quarterly, 64(4), pp. 798–807. Supplementary appendix.
It is generally regarded that a robust global financial safety net is a global public good. Yet public goods models that explain the existence of the global financial safety net cannot also explain why it is highly fragmented and provisioned so inequitably. This study shows that the global financial safety net's existence, fragmentation, and inequitable coverage can be explained by modelling the global financial safety net as a global club good. The primary finding of the model is that when a state has a monopoly on the provision of a non-rival and excludable good (i.e., a club good), separate multilateral and bilateral club governance structures emerge, each with a unique structure and cost. Brief case studies of the global financial safety net provisioned by the International Monetary Fund, the Federal Reserve, and the Bank for International Settlements support the model.
Michael A. Gavin (2020). ``Independent central banks and banking crisis liquidity'', The Review of International Organizations, 15(1), pp. 109–131. Data. Code. Placebo analysis. Tables. Figures.
This study develops and tests a formal model that shows why central banks protected from direct government borrowing supply a larger financial safety net for commercial banks during a crisis. This result is derived from a novel model of central bank independence grounded in the rules governing access to the central bank’s balance sheet, rather than in the politics of inflation. Subsequent analysis shows that this result is mediated by the degree of leverage in the banking system, but only in democracies where government borrowing restrictions are credible. Supporting quantitative evidence comes from an event study on a large sample of emerging market banking crises between 1980-2009.
Bernard, Jean-Thomas, Michael Gavin, Lynda Khalaf, and Marcel Voia (2015). "Environmental Kuznets curve: Tipping points, uncertainty and weak identification." Environmental and Resource Economics 60(2), pp. 285-315.
In progress
Interest groups and central bank credit policies: Evidence from 1600-1914 (revise & resubmit)
Before the nineteenth century, nearly all central banks financed government spending, but as the centuries passed direct government financing became taboo. Using original data from 69 central banks established between 1600-1914, this study traces a shift away from government financing and towards increased support for private sector credit via discounting commercial bills of exchange beginning in the eighteenth century. What drove this transformation in central bank credit policies? Evidence suggests that central bank credit policies are driven by the composition of a government's supporting coalition, rather than structural economic forces. Security interests motivate governments to establish central banks that lend back to themselves, while economic interests motivate governments to establish central banks that discount bills of exchange. Discrete time survival analysis supports these contentions. This research highlights how political-historical context and the salience of specific interest groups shaped the long-term evolution of central banking.
Central banks and sovereign credibility: constraints, information, and market priorities (under review)
Lending to governments is risky, as creditors may have little recourse should the government default. Research shows that central banks enhance sovereign credibility and reduce borrowing costs, but the reasons why are debated. A constraints view, tied to pre-20th century central banking, argues that central banks impose fiscal discipline by raising default costs. An information view, linked to modern central banking, suggests a central bank’s design signals credibility, especially its independence. Using a formal model, I devise a test grounded in the tasks assigned to historical central banks to adjudicate between these views. The model predicts reduced borrowing costs when central banks lend to governments (constraints) and discount bills of exchange (information). Empirical results support the information view. Not only have central banks signaled sovereign credibility for longer than is generally recognized, but that the priorities of market actors, not fixed institutional attributes, determine what constitutes a positive signal of sovereign credibility.
Beyond conditionality: The IMF's balance sheet and central bank design (with Carolina Garriga) (under review)
A large literature explores how loan conditionalities and policy recommendations embedded in IMF lending programs influence country behavior and policy choices. We argue that the IMF's influence extends beyond these intentional efforts. This paper shows that the relative decrease in the IMF's lending capacity structures incentives for emerging and developing economies to strengthen their domestic institutions for financial stability. This lending capacity channel is an unintentional bi-product of the politics shaping the IMF's balance sheet. We motivate our argument using a formal model where a decline in the IMF's lending capacity generates incentives for potential IMF borrowers to signal their commitment to financial stability via strengthening their central bank's capabilities to act as a lender of last resort. We test our theory using original data on central banks’ lender of last resort powers for 60 developing countries between 1994 and 2020. We find robust support for the main empirical implication of our model. Placebo tests on other reforms of central bank governance provide additional support to our argument. Our findings imply that IMF influence extends beyond conditionality, shaping incentives for countries even when they are not actively participating in an IMF program.
Book project
The global financial safety net: Why politics leaves it fragmented, inequitable, and unsustainable
Creditor and debtor relationships entail asymmetric power dynamics. Would-be borrowers are necessarily in a weaker position relative to would-be creditors given that the latter has the power to approve or deny the extension of credit. I argue that such a power asymmetry exists with respect to the global financial safety net and that large financial powers have a self-interest to leverage this power asymmetry to their advantage.
The book develops a political economy model of the global financial safety net grounded in asymmetric creditor-debtor relations. The global financial safety net provider chooses between three regime types: (i) an autarky regime that entails no global financial safety net; (ii) a public goods regime consisting of a multilateral arrangement or customized bilateral arrangements; and, (iii) a club goods regime comprised of a multilateral arrangement for some, and customized bilateral arrangements for others. I find that the club goods regime is the most likely as this regime gives large financial powers the greatest utility.
My research finds that the politics pushing for the club goods regime renders the global financial safety net fragmented and results in highly inequitable access. It also leaves emerging and developing state financial systems at a structural disadvantage and prone to instability.
Dissertation
Financial Safety Nets in Emerging Market Economies
Presentations (selected)
“Beyond conditionality: how the IMF's balance sheet unintentionally impacts central bank design," presented with at the American Political Science Association Annual Conference, Montreal, Canada, September 2022
“De Facto and De Jure Central Bank Independence," co-presented with Mark Manger at the American Political Science Association Annual Conference, Washington, D.C., USA, September 2019
“Global and domestic financial safety nets: economically additive, politically substitutable options for financial stability promotion,” the Political Economy of Finance conference for early career researchers, Oxford University, October 2018
“Global & Domestic Financial Safety Nets and Banking Crises," presented at the American Political Science Association Annual Conference, Boston, USA, September 2018
“Where are All the Banking Crises?” presented at the Midwest Political Science Association Annual Conference, Chicago, USA, April 2018
“Central Bank Financial Strength and Banking Crises in Emerging Market Presentations Economies” co-presented with Mark Manger at the American Political Science Association Annual Conference, San Francisco, USA, September 2017
“Why is There No International Lender of Last Resort?” presented at the Midwest Political Science Association Annual Conference, Chicago, USA, April 2017
“Politics and Financial Risk in Emerging Market Economies,” presented at the Friday International Relations Seminar and Tea! (FIRST) in the Department of Political Science, University of Toronto, September 30, 2016
“Capital Flows, Exchanges Rates, and the Political Economy of High Beta Presentations Economies” presented at the American Political Science Association Annual Conference, Philadelphia, USA, September 2016
“Capital Flows, Exchanges Rates, and the Political Economy of High Beta Economies” (with Mark Manger) co-presented at the European Political Science Association Annual Conference, Vienna, Austria, June 2015
“The Environmental Kuznets Curve: Tipping Points, Uncertainty, and Weak Identification” (with Jean-Thomas Bernard, Lynda Khalaf, and Marcel Voia) presented at Computational and Financial Econometrics Annual Conference, London, UK, December 2010