NEW PUBLICATION: This research provides novel empirical evidence about the exchange rate reaction to international organization loans and geopolitical preferences using an unbalanced panel of 153 countries observed from February 1993 to December 2019. For elected temporary members of the UN Security Council, the IMF loans cause a sizeable appreciation in the exchange rate vis-à-vis the USD of around 2 percent at the 12-month horizon, after controlling for institutional quality. ADB loans cause an appreciation of around 0.25 percent at the 4-month horizons. These effects are stronger when the geopolitical distance with China is higher, indicating a higher credibility for these loans.
Keywords: Exchange Rates, Geopolitical Preferences, International Organization Loans, Institutional Quality.
JEL: D78, F30, F42.
Our identification relies on the fact that UNSC non-permanent members’ election is a quasi-random treatment due to the nature of the election process; and, as countries cannot anticipate their election, they cannot trade votes against loans before the election. The “horse trade”, suggested by Dreher et al. (2009) using annual data, may appear after the election. However, our backward-looking measure of geopolitical preferences and the use of monthly data ensure robust causal identification.
You can find the SSRN version with the abstract and the keywords in an older post.
You can quote this article as:
Oriola, H., & Saadaoui, J. (2025). Exchange Rate Reaction to International Organization Loans and Geopolitical Preferences. Economics Letters, 248, 112212. Open Access thanks to a grant from the Université Paris VIII Vincennes-Saint-Denis.
