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Exchange Rate Populism

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  • Sainan Huang
  • Cristina Terra

Abstract

East Asian and Latin American economies present opposite exchange rate electoral cycles: exchange rates tend to be more depreciated before and appreciated after elections among East Asian economies, while the opposite is true in Latin America. We propose a explanation for these empirical findings where the driving force of the opposite exchange rate populism in these two regions is their difference in the relative size of tradable and non-tradable sectors, coupled with the distributive effect of exchange rates. In a setup where policy-makers differ in their preference bias towards non-tradable and tradable sectors, the exchange rate is used a noisy signal of the incumbent's type in an uncertain economic environment. The mechanism behind the cycle is engendered by the incumbent trying to signal he is median voter's type, biasing his policy in favor of the majority of the population before elections.
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  • Sainan Huang & Cristina Terra, 2016. "Exchange Rate Populism," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 105-132, March.
    • Handle: RePEc:bla:ecopol:v:28:y:2016:i:1:p:105-132
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    File URL: http://hdl.handle.net/10.1111/ecpo.12073
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    Cited by:

    1. Arslan Razmi, 2018. "Politics-Driven Exchange Rate Cycles : East Asia vs. Latin America," UMASS Amherst Economics Working Papers 2018-14, University of Massachusetts Amherst, Department of Economics.
    2. Arslan Razmi, 2022. "The real consequences of policy‐driven exchange rate cycles: A stylized comparison of East Asia and Latin America," Manchester School, University of Manchester, vol. 90(2), pages 190-212, March.

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