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Elections And Exchange Rate Policy Cycles

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Author Info
Marco Bonomo
Cristina Terra

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Abstract

This paper presents a theoretical model based on the distributive effects of real exchange rate (RER) changes that generates RER electoral cycles of the type identified in Latin American countries: more appreciated RER before elections and more depreciated after elections. Typically, a RER depreciation favors exporters and import-competing domestic industries, to the detriment of consumers. These RER cycles are generated by imperfect information on policy-makers' preferences, which are concealed from voters with the help of an unstable macroeconomic environment. Exchange rate cycles result from the interplay between the electoral power of the non-tradable sector and the tradable sector's ability to lobby the government. Copyright Blackwell Publishing Ltd 2005.

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Publisher Info
Article provided by Blackwell Publishing in its journal Economics & Politics.

Volume (Year): 17 (2005)
Issue (Month): (07)
Pages: 151-176
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Handle: RePEc:bla:ecopol:v:17:y:2005:i::p:151-176

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Oxford University Press, vol. 24(3), pages 367-88, July.
  3. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Blackwell Publishing, vol. 42(2), pages 169-90, April. [Downloadable!] (restricted)
  5. Laura Alfaro, 1999. "Why governments implement Temporary Stabilization Programs," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 211-245, November. [Downloadable!]
  6. Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 1999. "The Political Economy of Exchange Rate Policy in Brazil: an Empirical Assessment," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 53(4), April. [Downloadable!]
  7. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August. [Downloadable!] (restricted)
  8. Block, Steven A., 2002. "Political business cycles, democratization, and economic reform: the case of Africa," Journal of Development Economics, Elsevier, vol. 67(1), pages 205-228, February. [Downloadable!] (restricted)
  9. Moritz Kraemer, 1997. "Electoral Budget Cycles in Latin America and the Caribbean: Incidence, Causes, and Political Futility," RES Working Papers 4084, Inter-American Development Bank, Research Department. [Downloadable!]
  10. Piero Ghezzi & Ernesto Stein & Jorge M. Streb, 2000. "Real exchange rate cycles around elections," CEMA Working Papers: Serie Documentos de Trabajo. 174, Universidad del CEMA. [Downloadable!]
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  11. Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special Interests and Political Business Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 597, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  2. Sergio Sakurai & Naercio Menezes-Filho, 2008. "Fiscal policy and reelection in Brazilian municipalities," Public Choice, Springer, vol. 137(1), pages 301-314, October. [Downloadable!] (restricted)
  3. Allan Drazen & Marcela Eslava, 2006. "Pork Barrel Cycles," NBER Working Papers 12190, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 1999. "The Political Economy of Exchange Rate Policy in Brazil: an Empirical Assessment," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 53(4), April. [Downloadable!]
  5. S. Brock Blomberg & Jeffry Frieden & Ernesto Stein, 2005. "Sustaining fixed rates: The political economy of currency pegs in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 203-225, November. [Downloadable!]
  6. Piero Ghezzi & Ernesto Stein & Jorge M. Streb, 2000. "Real exchange rate cycles around elections," CEMA Working Papers: Serie Documentos de Trabajo. 174, Universidad del CEMA. [Downloadable!]
    Other versions:
  7. Terra, Maria Cristina T., 2007. "The Political Economy of Exchange Rate in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 656, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  8. Sakurai, Sergio N. & Menezes, Naercio A., 2008. "Fiscal policy and reelection in Brazilian municipalities," Ibmec Working Papers wpe_115, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  9. Diego Aboal & Fernando Lorenzo & Andrés Rius, 2000. "Is the exchange rate politically manipulated around elections? The evidence from Uruguay," Documentos de Trabajo (working papers) 1800, Department of Economics - dECON. [Downloadable!]
  10. Marco Bonomo & Cristina Terra, 2008. "Political Business Cycles through Lobbying," THEMA Working Papers 2008-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
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