My research integrates international and comparative political economy, international economics, and business finance. I have developed an active research program that centers on the political economy of international finance. In a series of articles and in my book manuscript, I have focused on three inter-related research agendas:
1) the political economy of exchange rate policy; 2) the credibility in international markets; 3) the variety of financial capitalism. My published and ongoing research explores the sources of government reputation in international markets, the implications of the structure of banking sector ownership for government economic policies, the determinants of variation in financial development across countries, and the politics of fiscal austerity. This academic agenda has inspired me to embrace methodological pluralism, blending elements of advanced statistical modeling and comparative analysis.
I received my Ph.D. in Government from Cornell University and a PhD in Economics from the University of Economics in Bratislava, Slovakia. I have previously taught at the University of California, Berkeley and Stanford University, and have worked at the European Commission in Brussels and the National Bank of Slovakia (central bank). I have received the Austrian Marshall Plan Foundation Fellowship, British Chevening Award, among other fellowships and awards. My economic analyses and legal decisions on the European competition law were published in the Official Journal of the European Communities.
On this page, you may find my CV; my research, and information on the courses that I teach. You may be also interested in the Political Economy Seminars that I organize at the University of California, Riverside.
My book offers a novel account of reputation formation in international finance by arguing that governments can borrow credibility from reputable multinational banks. It focuses on the credibility of monetary regimes, which is central to understanding inflationary expectations and currency crises. Countries with credible monetary regimes borrow at lower interest rates in international markets and are less likely to suffer speculative attacks and currency crises. The book argues that governments can borrow credibility from reputable multinational banks headquartered in Western Europe and North America. By contrast, a country that announces the entry of multinational banks headquartered in developing countries does not gain a reputational boost.
When reputable multinational banks locate branches and affiliates within a country; this serves as a signal of the host government’s commitment to stable monetary policy. Multinational banks also provide an enforcement mechanism, thus gives assurance to financial markets that the announced policies will be carried out. The theory specifies novel mechanisms through which multinational banks affect credibility outcomes. Multinational banks increase transparency in local financial systems, allowing better motoring of economic policies. These banks can improve regulatory quality and enhance the soundness of the financial system of their hosts. Finally, multinational banks act as international lenders of last resort.
This argument challenges the prevailing scholarship depicting reputation as a result of either domestic institutions (such as autonomous central banks), or international agreements. It also challenges the claim that reputation can serve as a substitute for commitment mechanisms, assuming that policymakers in their efforts to preserve their reputation stick to their commitments. By contrast, I argue that many countries have little reputation to protect.
The book combines quantitative analysis of 80 emerging markets with extensive case studies of credibility building (employing over 120 field interviews) in the transition countries of Eastern Europe (Bulgaria, Estonia, the Czech Republic, Poland, and Ukraine), Argentina in 2001, and the global financial crisis of 2008.
I show that the perceived creditworthiness of many transition countries’ governments by international investors rests on a “transfer” of good reputation from prestigious multinational banks. If information about a country is scarce, financial markets rely on the reputation of prestigious multinational banks, as foreign investors. The argument is strongly supported by quantitative analysis and further backed by evidence from three Eastern European countries: Hungary, Estonia and Ukraine.
I provide a new form of coalitional argument for the continued resilience of bank-based systems of national finance in advanced democracies in the face of financial globalization. I find that the degree of strategic coordination through extra-market institutions contributes to a country’s domestic banking development but is less conducive to the development of its securities markets. Non-market coordination protects the economic system from class and sectoral pressures and promotes collaboration among state agencies, financiers, managers, and labor organizations. My contribution to the study of varieties of capitalism has also sought to highlight the emergence of an asymmetric form of corporatist arrangements, whereby banks play a crucial role in defining the new rules of financial governance.Download
This paper extends the existing literature by applying a path dependence approach associated with the work of Collier, Mahoney, Thelen and Pierson to studying external influences on democratic outcomes. The focus here is on the critical moments in a country’s trajectory, emphasizing the power of agency to build democracy despite unfavorable initial conditions. The article shows that external actors have the greatest influence during the crucial moments on the road to democracy—“critical junctures”—by eliminating and delegitimizing support for the authoritarian alternatives and helping to build a domestic consensus on a democratic course.Download
This is a comprehensive survey of the vast scholarship in Economics and Political Science on the monetary and exchange rate policies in formerly centrally planned economies. I argue that the scholarship on exchange rates in transition countries has developed a more nuanced understanding of interest group politics than existing literature on the politics of exchange rates, reinforced the importance of institutions, and exposed the limits of European integration in exchange rate area. The chapter urges scholars to provide stronger micro-foundations, to develop a more dynamic approach to studying monetary institutions, and to trace causality back in time to examine how historical legacies influence institution building.Download
I show that coordinating institutions have not only helped corporatist countries cope with financial globalization by compensating societal groups through bank-centered finance and cross-shareholding, but also with the recent financial turmoil and post-crisis stabilization. I argue that the global financial crisis of 2008, caused primarily by the excesses of deregulation and securitization of subprime US residential mortgages, underlined the weaknesses of market-based financial systems. Variation in the intensity of the crisis and in national policy responses reflected differences in national models of financial capitalism. One interesting implication of this study is that it demonstrates that the extent and character of state interventions in the economy as a response to the crisis served to reinforce the particular institutional features of the pre-existing models as opposed to undermining them.Download
The paper focuses on the determinants of sovereign credit ratings, which are assessments of a government’s willingness and ability to repay its debt. I test the proposition that established international banks, as foreign direct investors, provide reputational capital to host countries with weak financial systems and make their fiscal policies and commitments credible by increasing transparency on their financial and fiscal accounts, disciplining economic policies of host governments, and by mitigating the incentives and impact of bank bailouts. Examining ratings from the leading credit rating agencies (Standard & Poor’s, Moody’s, and Fitch), my findings indicate that the countries with high levels of foreign-bank ownership are assigned more favorable credit ratings and find it easier to obtain credit in sovereign debt markets at lower interest rates that do the countries where (unreformed) domestic banks dominate financial intermediation.
We explore the electoral consequences of austerity policies. We argue, counter to the common wisdom, that policies of retrenchment in the government budget actually reduce support for radical right- and left-wing parties in advanced democracies. Our argument rests on the recognition that austerity policies force traditional left-right politics to the forefront of political debate with the traditional mainstream parties having a stronger ownership over economic issues. We also find that austerity policies affect the electoral performance of right- and left-wing extremist parties, differently depending on these policies are based upon spending cuts or tax increases.
The paper identifies exchange rate preferences of banks, associated with a particular ownership type and evaluates the mechanisms of their influence. I argue that governments are less willing and able to commit to and sustain fixed exchange rate arrangements in clientelistic financial systems dominated by state owned banks than in systems with a large presence of foreign banks. I further suggest that bank ownership influences the stability of domestic monetary system and banking regulation, which are critical to the sustainability of fixed regimes. State owned banks subject macro-economic policy to political considerations, particularly in an environment of weak financial structures. This combination of factors tends to be associated with expansive credit policies, high inflation, and monetization of budget deficits. Thus, policy-makers lack the political support to commit credibly to low inflation and are often forced to abandon fixed regimes in the face of banking or currency crises. This article not only shows that bank ownership structures vary across countries and over time but also how that this variation helps explain the puzzling heterogeneity of de facto exchange rate regimes in twenty-five Central and Eastern European states.
I extend the influential interest group approach to financial development put forward by Rajan and Zingales (2003), by arguing that the variation in institutional structures of national financial governance is a function of a variation in mode of divestiture of state assets in banks and industries. I find evidence in favor of the openness to foreign investment hypothesis: countries that allow foreigners to assume the role of strategic investors in banks and industries via the asset-sale method of privatization tend to be associated with more developed legal institutions of governance and better creditor rights protection that countries that delay privatization or use insider privatization schemes. The article’s principal claim rests on the premise that the direct sales path to private markets enhances the development of financial system by reducing the ability of incumbent interest groups to control and manipulate the banking sector. This is important because it shows that privatization through direct sales to a foreign buyer produces significant indirect benefits for development of local credit and capital markets.
This paper broadens our understanding of the implications of the governmental participation in finance by examining heterogeneous impact of state-owned banks on inequality across countries. Here we argue that the impact of state-owned banks on equality of opportunity depends on political transparency, but in counter-intuitive ways. We find that extreme levels of government opacity reduce the negative impact of state-owned banks on equality of opportunity to the point of reversal. Hence, state owned banks may decrease inequality in extremely opaque countries. In non-transparent political regimes, national governments must lower barriers to economic activity (e.g., restrict the entry of new firms) to signal the credibility of their policies and minimize the costs of low transparency, such as reduced capital flows and poor credit ratings. This finding has also interesting implications for scholarship on the role of political institutions in economic performance by demonstrating that it is not the constraints imposed by domestic institutions that lead opaque governments to provide better equality of opportunity; rather these governments choose to create a better business climate to gain legitimacy in the eyes of international audiences.
I explore how the choice of an exchange rate regime influences the perceptions of a country’s political (sovereign) risk. In their pioneering study, Bordo and Rockoff (1996) argued that the market considered the adherence to the gold standard as equivalent to a “good housekeeping seal of approval,” thus rewarded countries with good records of adherence with lower borrowing costs. Using contemporary data and interviews with credit rating agencies and international banks, I investigate whether emerging markets reap credibility gains in international credit markets by adopting a fixed exchange rate regime and inflation targeting. I find that both hard pegs and inflation targeting, working as a binding policy rule, deliver greater credibility gains to countries with low political instability and good political institutions but not to the countries with inadequate institutions. Hence, exchange rate regime alone may not influence the perceived country risk. I further argue that the perceptions of risk by bond investors also reflect whether governments back up their actions in exchange rate policy with official declarations. I find that countries displaying fear of floating (that is, proclaim float but intervene to keep a stable exchange rate) tend to be rewarded with lower borrowing costs.
I examine how private, public, national, and multinational stakeholders in the pan-European financial system overcame the collective action problems that traditionally constrain the provision of public good of international financial stability and governance. I extend the Broz (1999) “joint products” argument to transnational finance to explain the voluntary collective action behind the 2009 Vienna Initiative, whose goal was to avoid uncoordinated withdrawal of capital and to guarantee regional financial stability in emerging Europe. I argue that private multinational banks were unable to realize a private benefit (financial support package) without contributing to the associated public good (international financial stability) and thus pledged to maintain cross-border exposures and pushed for coordinated response.
I explore the impact of the national wage-bargaining arrangements on the credibility of the commitments by European governments to the European monetary cooperation of fixed exchange rates between 1979—when the European Monetary System was established—and the current Eurozone crisis. My cross-country comparative analysis of Austria, Italy, and Ireland shows that a government’s effort to maintain fixed exchange rates is more successful in countries with centralized or coordinated wage bargaining structures that can moderate price growth by successfully limiting public sector wage growth. The paper also examines the impact of the global financial crisis on collective bargaining actors and structures in European nations.
This paper develops a novel typology of financial systems in the post-communist region of Eastern Europe and traces variation in bank ownership structures and central bank independence to patterns of national monetary and macro-economic management.
We investigate the impact of fiscal austerity on several dimensions of public opinion that include trust in national, regional and local governments as well as attitudes towards parliaments and political parties. We further examine whether it matters for public opinion whether fiscal consolidation is spending-based or taxed-based. The literature has yet to show whether austerity policies are associated with declining trust in the institutions of representative democracy.
We explore whether education and professional background of leaders matter for foreign investments in banking and industry by looking at 30 years of data on profession and education of over 500 political leaders from 72 countries. The paper tests the argument that to the extent that political agency matters, the education and background of leaders in economics and finance should be perceived as sources of credible commitments to foreign investors because their training signals technical expertise, knowledge, and consistency.