Real exchange rate cycles around elections

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Real exchange rate cycles around elections

Author Info

Piero Ghezzi
Ernesto Stein
Jorge M. Streb

Additional information is available for the following registered author(s):

Jorge Miguel Streb

Abstract

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 2000
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Handle: RePEc:cem:doctra:174

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Article
- Ernesto H. Stein & Jorge M. Streb & Piero Ghezzi, 2005. "Real Exchange Rate Cycles Around Elections," Economics and Politics, Blackwell Publishing, vol. 17(3), pages 297-330, November. [Downloadable!] (restricted)

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.:

Guillermo A. Calvo & Carlos A. Vegh, 1999. "Inflation Stabilization and BOP Crises in Developing Countries," NBER Working Papers 6925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614 Elsevier. [Downloadable!] (restricted)
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Other versions:
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Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Edwards, Sebastian, 1994. "The Political Economy of Inflation and Stabilization in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 42(2), pages 235-66, January.
Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," CEMA Working Papers: Serie Documentos de Trabajo. 140, Universidad del CEMA. [Downloadable!]
Other versions:
- Stein, Ernesto H. & Streb, Jorge M., 2004. "Elections and the timing of devaluations," Journal of International Economics, Elsevier, vol. 63(1), pages 119-145, May. [Downloadable!] (restricted)
Marco Bonomo & Cristina Terra, 2005. "Elections And Exchange Rate Policy Cycles," Economics and Politics, Blackwell Publishing, vol. 17, pages 151-176, 07. [Downloadable!] (restricted)
Other versions:
- Marco Bonomo & Cristina Terra, 2004. "Elections and Exchange Rate Policy Cycles," International Finance 0402001, EconWPA. [Downloadable!]
- Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 2001. "Elections and Exchange Rate Policy Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 435, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December. [Downloadable!] (restricted)
Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-29, December. [Downloadable!] (restricted)
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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:
- Stein, E.H. & Streb, J.M., 1995. "Political Stabilization Cycles in High Inflation Economies," RES Working Papers 309, Inter-American Development Bank, Research Department.
- Ernesto H. Stein & Jorge M. Streb, 1997. "Political Stabilization Cycles in High Inflation Economies," CEMA Working Papers: Serie Documentos de Trabajo. 123, Universidad del CEMA. [Downloadable!]
- Ernesto Stein and Jorge Streb., 1994. "Political Stabilization Cycles in High Inflation Economies," Center for International and Development Economics Research (CIDER) Working Papers C94-039, University of California at Berkeley.

Full 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.)

Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 2005. "Special Interests and Political Business Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 597, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
Marco Antonio Cesar Bonomo & Maria Cristina Trindade Terra, 2001. "Elections and Exchange Rate Policy Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 435, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
Other versions:
- Marco Bonomo & Cristina Terra, 2004. "Elections and Exchange Rate Policy Cycles," International Finance 0402001, EconWPA. [Downloadable!]
- Marco Bonomo & Cristina Terra, 2005. "Elections And Exchange Rate Policy Cycles," Economics and Politics, Blackwell Publishing, vol. 17, pages 151-176, 07. [Downloadable!] (restricted)
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!]
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. [Downloadable!]
Ari Aisen, 2004. "Money-Based Versus Exchange-Rate-Based Stabilization: Is There Space for Political Opportunism?," IMF Working Papers 04/94, International Monetary Fund. [Downloadable!]
Vladimir Klyuev, 2003. "The Distributional Consequences of Real Exchange Rate Adjustment," IMF Working Papers 03/133, International Monetary Fund. [Downloadable!]

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