2023/05/02 by Lena Lee Andresen, Jan-Egbert Sturm, Jan‐Egbert Sturm · 1 citation
Computer Science · Economics, Econometrics and Finance · Social Sciences · #Economic Growth and Development #International Development and Aid #Natural Resources and Economic Development
paper · pdf · doi:10.1080/09692290.2023.2200963
openalex publication_date 2023/05/02 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We study the effect of geopolitics on short-term financial market reactions to IMF program approvals. If IMF programs are influenced by geopolitics, they may be less successful in stabilizing the economy. This could lead financial market participants to sell the country’s assets and thus reduce the catalytic effect of IMF programs. Using a monthly panel data set for about 100 IMF members covering 1993-2019, we find that if geopolitics are involved, the approval of a new IMF program increases risk aversion of financial market participants. To measure geopolitical interest, we focus on program approvals for temporary members of the United Nations Security Council (UNSC). We find that temporary UNSC members receiving an IMF program face higher bond and bill yields, depreciating exchange rates, and weaker stock market developments. This is consistent with investors reducing exposure to the country’s financial assets. Such a negative investor reaction is not observed for IMF program approvals for non-UNSC temporary members.