Michael A. Gavin

Researcher, Global Economic Policy Lab

Munk School of Global Affairs and Public Policy

The University of Toronto

SSHRC Postdoctoral Fellow, Graduate School of Public

and International Affairs, The University of Ottawa​ &

The Department of Government, ​Harvard University


Michael A. Gavin (2020). ``Global club goods and the fragmented global financial safety net,'' International Studies Quarterly, 64(4), pp. 798–807. https://doi.org/10.1093/isq/sqaa062. 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. https://doi.org/10.1007/s11558-018-9324-5. 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. https://doi.org/10.1007/s10640-014-9767-y.

In progress

Populism and ​de facto central bank independence (with Mark Manger) (under review)
Although central bank independence is a core tenet of monetary policy-making, 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 new data set of public pressure on central banks by classifying over 9000 analyst reports using machine learning. We find that populist politicians 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.

Central bank last resort lending capabilities: replacing the IMF? (with Carolina Garriga)
The literature on the politics of central banking has focused overwhelmingly on the question of independence. To the best of my knowledge, there are no studies that explore the politics of central bank lending capabilities. To this end, this article presents a new database coding legislation for central bank lender of last resort capabilities. I find that: (i) the lending capabilities of emerging and developing country central banks has steadily expanded since the 1980s; and (ii) states with less access to the IMF are more likely to expand their central bank's lending capabilities, suggesting a substitution between domestic and global financial safety nets. Furthermore, using an event study I show central bank lending operations during the pandemic were strongly correlated with last resort lending capabilities. These findings are grounded in a formal model, in this case a new variant of the well-known beer-quiche game, a canonical signalling model.

Lenders of last resort: A new database (with Carolina Garriga)
Central banks are the pillars of contemporary global finance. Yet it is surprising that there is very little comparative research on their lending powers. To fill this gap, we build an original database on the powers central banks possess as lenders of last resort. Using central bank legislation from around the world, we code for powers such as collateral requirements, the presence of interest rate or maturity restrictions, whether extraordinary powers can be granted in a crisis, and whether loans require government approval, among others. There are many questions we aim to study with our data. Why do some countries extend greater last resort lending powers than others? Do these greater powers promote financial stability or moral hazard? Do reforms to last resort lending powers correlate with reforms to central bank independence?

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. 


Financial Safety Nets in Emerging Market Economies

Conference Presentations (selected)

“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