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.
This paper provides theoretical justification and empirical evidence linking the mode of privatization of state assets in banks and industries to the quality of institutions of legal and financial governance that underpin financial development. The evidence from twenty-five states of Eastern Europe suggests that allowing foreigners to assume the role of strategic investors in banks and industries via direct sale methods of divestiture of state assets contributes to legal and institutional development, particularly a stronger and more impartial legal system, better quality of bureaucratic governance, and stronger legal protection of creditors, while insider privatization schemes, such as voucher privatization or management–employee buyouts, do not fulfill the same role. The empirical results are robust to instrumental variable analysis and to the inclusion of numerous economic and political controls for alternative explanations.
Sovereign credit ratings importantly influence the borrowing costs of governments in international capital markets. Yet, there is limited understanding of how credit-rating agencies determine sovereign bond ratings. I provide theoretical justification and empirical evidence to support the proposition that a substantial presence of established global banks, acting as foreign direct investors, enhances the perceived creditworthiness of the host countries that have weak domestic institutions. Foreign banks can render the host countries’ commitments to make good on their debt obligations more credible by encouraging the transparency in the financial system, disciplining their fiscal policies, and mitigating the incentives for and impact of bank bailouts. Statistical evidence from countries in emerging Europe shows that countries with high levels of foreign bank ownership tend to be assigned better sovereign credit ratings and find it easier to obtain credit at lower interest rates in sovereign bond markets. My findings are robust to various estimation techniques, to extensive controls for alternative determinants of credit ratings, for the endogeneity of foreign bank entry, and for sample-selection bias. Interviews with bankers and senior analysts at credit-rating agencies were used to complement quantitative analyses. This article is the first attempt in the literature on sovereign borrowing and debt to examine whether private market agents, such as global banks, can enhance the government’s international creditworthiness.
Why do governments pursue regulatory reforms fostering entrepreneurship? In this paper, we examine the link between government ownership of banks, political regime transparency, and regulatory barriers to the entry of new industrial firms. We propose a signaling theory for the deregulation of entry. We argue that high levels of government ownership of banks and political system opacity erode the reputation of national economies in the eyes of international investors. To improve international perceptions of their business and investment climate, governments reduce regulatory barriers to new business entry. Deregulation of new firm entry signals an improved investment climate to foreign investors, and thereby substitutes for political system transparency. This signal is credible, valued by international investors, and easier to implement than alternative signals. Evidence drawn from an analysis of 93 developed and developing countries supports our propositions. Countries with high levels of state ownership of banks exhibit higher regulatory barriers to firm entry. However, this relationship attenuates and even reverses in extremely opaque political systems. Consistent with our argument that international perceptions are the key mechanisms underlying this conditional relationship, we also show that the moderating effect of political system opacity weakens among countries with high levels of government ownership of banks and FDI inflows. Our findings have important implications for the literature on state ownership of banks, the political economy of reform, and for our understanding of strategic signaling in international relations.
This paper argues that state-owned, private domestic, and foreign banks have different preferences for exchange rate policies. More specifically, I posit that governments will be less willing and able to maintain fixed exchange rate arrangements in closed banking systems dominated by government-owned banks than in globalized banking systems with a large presence of foreign banks. The article’s principal claim rests on the notion that ownership structure of the banking system empowers different types of banks, affects their interests, and shapes the responsiveness of government politicians to bank demands. The bank ownership types further influence the stability of the domestic monetary system and financial regulation that are of paramount importance in the determination of exchange rate regimes. An empirical investigation of data on exchange rate regimes for 25 Central and Eastern European countries provides strong support for the theory. The results are robust to alternative estimation techniques, instrumental variable analysis, and the inclusion of several economic and political variables.
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.Download
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
How do sovereign bond markets respond to exchange rate policies of emerging market governments? The traditional view following the pioneering study by Bordo and Rockoff is that gold standard adherence was equivalent to a "good housekeeping seal of approval, “rewarded by the international capital market with lower borrowing costs. Analyzing data from 31 emerging markets during 1994‒2011, I demonstrate that the credibility gains from adopting a hard peg in the modern era are limited to countries with good institutions. Bond investors associate institutional weakness with a reduced likelihood that a government’s commitment to a currency peg will have a lasting disciplining effect on economic policies. The market assessment of sovereign risk also reflects whether governments back up their actions in exchange rate policy with official declarations. I find that sovereign bond spreads are lower in countries displaying a “fear of floating” behavior (pegging to a greater extent than what they officially announced) than in countries that break their official commitments to the exchange rate peg.
Scholars have argued that political uncertainty about which parties occupy the executive office in periods leading up to elections as well as during the coalition bargaining following elections may have adverse economic consequences. During periods of such political uncertainty, bond investors may hold back on their investment decisions and governments may be charged higher interest rates on sovereign bonds. Such economic concerns have been one of the prime motivations for studying bargaining duration. The question has moreover been rendered salient by several recent examples of coalitions taking a very long time to form. In the manuscript, we put the argument that political uncertainty surrounding coalition formation has negative economic effects to a test by examining how political uncertainty related elections and coalition formation influences the interest rate on long-term government bonds. We consider how these effects are conditioned by ideological factors as well as how uncertainty evolves over the duration of the bargaining formation process.
How and why do politicians’ monetary policy preferences differ from that of autonomous central banks? When and why do politicians support and criticize central banks? This paper examines the extent to which the weights on inflation and employment in the preferred monetary policy reaction functions differ between the Bank of England and British politicians in the aftermath of the 2008 global financial crisis. I construct a novel database containing politicians’ statements about the Bank of England’s monetary policy from 2007 to 2017. These are statements extracted from newspaper articles and newswire reports regarding the Bank of England’s monetary policy (interest rates and quantitative easing) made by government officials (prime minister and all ministers as well as Members of Parliament). The paper yields two main findings. The first, in contrast to the existing literature, I find that British politicians give more importance to price stability (i.e. call for higher interest rates) and place a lower weight on unemployment in times of crisis. This finding is particularly strong when we consider political commentaries on quantitative easing. Second, I also find that the relative weight on inflation performance in politicians’ preferred reaction functions decreases in favor of lower interest rates when their reelection chances are high, when a left party is in power, when the public trust in the BOE is low, and when the British pound appreciates.
The expansion of central bank powers to include financial stability and unconventional monetary policy after the 2008 global financial crisis provoked a political backlash against central banks. Politicians have questioned the value of central bank independence and new powers and responsibilities of monetary authorities. For instance, Britain's former Secretary of State for Foreign Affairs William Hague said in 2016: “Central bankers have collectively lost the plot. They must raise interest rates or face their doom.” This paper examines the effects of political commentaries over the monetary policy of the Bank of England on the expectations of financial markets. In other words, I explore whether financial markets believe that monetary policy decisions of the Bank of England are influenced by pressures from policymakers. I assume that if financial markets believe that the central bank’s policy can be influenced by politicians, then political commentaries will affect market expectations. I develop an original database containing statements of British politicians about the monetary policy of the Bank of England between 1997, when it was given operational independence over monetary policy by the Labour government, and 2017. These are statements by politicians extracted from newspaper articles and newswire reports commenting on the Bank of England’s interest rate that are categorized as political pressures for monetary easing or tightening and on the quantitative easing. I examine a detailed pattern of the impact of political commentaries on high-frequency financial market data, including overnight index swap (a daily measure of market participants’ expected policy rate) and government bond yield spreads. I also explore whether comments by politicians on exchange rate influence the volatility of the pound-dollar exchange rate. This paper sheds new light on the question of central bank independence in the age of populism and ultra-low interest rates.
What is the impact of wealth inequality resulting from unconventional monetary policies of ultra-low interest rates and quantitative easing on the rise of populist voting? The paper will examine the distributional implications of the monetary policy pursued by the European Central Bank after the 2008 global financial crisis by exploiting the microdata on Italian’s household wealth and its effect on voting behavior of the Italian electorate.