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Exchange Rate Policy Attitudes: Direct Evidence from Survey Data

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  • J Lawrence Broz
  • Jeffry Frieden
  • Stephen Weymouth

Abstract

Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 55 (2008)
Issue (Month): 3 (July)
Pages: 417-444

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Handle: RePEc:pal:imfstp:v:55:y:2008:i:3:p:417-444

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Cited by:
  1. Berdiev, Aziz N. & Kim, Yoonbai & Chang, Chun Ping, 2012. "The political economy of exchange rate regimes in developed and developing countries," European Journal of Political Economy, Elsevier, vol. 28(1), pages 38-53.
  2. Jaroslava Durčáková, 2011. "Foreign Exchange Rate Regimes and Foreign. Exchange Markets in Transitive Economies," Prague Economic Papers, University of Economics, Prague, vol. 2011(4), pages 309-328.
  3. Fernández-Albertos, José, 2012. "Exchange rate regime preferences of the international sector. Firm-level evidence," Economics Letters, Elsevier, vol. 116(1), pages 26-30.
  4. Jeffry Frieden & David Leblang & Neven Valev, 2010. "The political economy of exchange rate regimes in transition economies," The Review of International Organizations, Springer, vol. 5(1), pages 1-25, March.

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