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Real exchange rate cycles around elections Author info | Abstract | Publisher info | Download info | Related research | Statistics Piero Ghezzi
Ernesto Stein
Jorge M. Streb
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We develop the implications of political budget cycles for real exchange rates in a two-sector small open economy with a cash-in-advance constraint. Policy makers are office motivated politicians. Voters have incomplete information on the competence and the opportunism of incumbents. Devaluation acts like a tax, and is politically costly because it can signal the government is incompetent. This provides incumbents an incentive to postpone a devaluation, and can lead to an overvalued exchange rate before elections. We compare the implied cycle of appreciated/depreciated exchange rates to empirical evidence around elections from Latin America.
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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number
174.
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Date of creation: Aug 2000Date of revision:
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Keywords: exchange rate overvaluation ; seigniorage ; political budget cycle ; asymmetric information. ; Other versions of this item:
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
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.:
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references 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.)
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Economics Working Papers (Ensaios Economicos da EPGE)
597, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
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Diego Aboal & Fernando Lorenzo & Andrés Rius, 2000.
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1800, Department of Economics - dECON.
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Marco Bonomo & Cristina Terra, 2008.
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Joel Sebastián Schneider, 2004.
"El rol de los gobernadores opositores en las elecciones presidenciales ,"
CEMA Working Papers: Serie Documentos de Trabajo.
281, Universidad del CEMA.
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Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2001.
"Elections and Exchange Rate Policy Cycles ,"
Economics Working Papers (Ensaios Economicos da EPGE)
435, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
[Downloadable!]
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