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Elections and Exchange Rate Policy Cycles

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  • Bonomo, Marco Antônio Cesar
  • Terra, Maria Cristina T.

Abstract

This paper presents a theoretical model based on the distributive effects of 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 policymakers' 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 nontradable sector and the tradable sector's ability to lobby the government.

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Bibliographic Info

Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 435.

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Date of creation: 01 Oct 2001
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Handle: RePEc:fgv:epgewp:435

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References

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  1. 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.
  2. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  3. 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.
  4. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  5. Laura Alfaro, 1999. "Why governments implement Temporary Stabilization Programs," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 211-245, November.
  6. Moritz Kraemer, 1997. "Electoral Budget Cycles in Latin America and the Caribbean: Incidence, Causes, and Political Futility," Research Department Publications 4084, Inter-American Development Bank, Research Department.
  7. 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.
  8. 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, Western Economic Association International, vol. 24(3), pages 367-88, July.
  9. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  10. 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, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 53(4), pages 411-432, October.
  11. 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.
  12. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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Citations

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Cited by:
  1. Sakurai, Sergio N. & Menezes, Naercio A., 2008. "Fiscal policy and reelection in Brazilian municipalities," Insper Working Papers wpe_117, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  2. Jorge M. Streb, 2011. "Estabilización económica e incentivos políticos," CEMA Working Papers: Serie Documentos de Trabajo. 461, Universidad del CEMA.
  3. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 2005. "Special Interests and Political Business Cycles," Economics Working Papers (Ensaios Economicos da EPGE) 597, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Kevin B. Grier & Fausto Hernández-Trillo, 2004. "The real exchange rate process and its real effects: The cases of Mexico and the USA," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 1-25, May.
  5. Terra, Maria Cristina T., 2007. "The Political Economy of Exchange Rate in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 656, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Allan Drazen & Marcela Eslava, 2006. "Pork Barrel Cycles," NBER Working Papers 12190, National Bureau of Economic Research, Inc.
  7. Sakurai, Sergio Naruhiko & Menezes, Naercio, 2010. "Opportunistic and Partisan Election Cycles in Brazil: New Evidence at the Municipal Level," Insper Working Papers wpe_208, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  8. Ernesto H. Stein & Jorge M. Streb & Piero Ghezzi, 2005. "Real Exchange Rate Cycles Around Elections," Economics and Politics, Wiley Blackwell, vol. 17(3), pages 297-330, November.
  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.
  10. Andrade, Sandro C. & Kohlscheen, Emanuel, 2010. "Pessimistic Foreign Investors and Turmoil in Emerging Markets : The Case of Brazil in 2002," The Warwick Economics Research Paper Series (TWERPS) 926, University of Warwick, Department of Economics.
  11. 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.
  12. 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.
  13. Sebastián Nieto Parra & Javier Santiso, 2008. "Wall Street and Elections in Latin American Emerging Economies," OECD Development Centre Working Papers 272, OECD Publishing.
  14. Cermeño, Rodolfo & Grier, Robin & Grier, Kevin, 2010. "Elections, exchange rates and reform in Latin America," Journal of Development Economics, Elsevier, vol. 92(2), pages 166-174, July.

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