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Elections and the Timing of Devaluations

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  • Ernesto H. Stein
  • Jorge M. Streb

Abstract

This paper presents a rational political budget cycle model for an open economy, in which devaluations are delayed in the pre-election period so as to increase the electoral chances of the party in office. By concentrating on closed economies, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. Voter uncertainty is introduced in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent, but they also ignore the degree to which the incumbent is opportunistic.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6452.

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Date of creation: Jan 1999
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Handle: RePEc:idb:brikps:6452

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Keywords: Elections; Taxation; fiscal policy; political budget cycles; elections; devaluations; WP-396;

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References

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  1. Jorge Miguel Streb, 2005. "Signaling in Political Budget Cycles: How Far Are You Willing to Go?," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 229-252, 05.
  2. Ben-Porath, Yoram, 1975. "The Years of Plenty and the Years of Famine-A Political Business Cycle?," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 28(2), pages 400-403.
  3. Sebastian Edwards, 1993. "The Political Economy of Infaliton and Stabilization in Developing Countries," NBER Working Papers, National Bureau of Economic Research, Inc 4319, National Bureau of Economic Research, Inc.
  4. Ernesto Stein and Jorge Streb., 1994. "Political Stabilization Cycles in High Inflation Economies," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C94-039, University of California at Berkeley.
  5. Ernesto H. Stein & Jeffry Frieden, 2000. "The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview," Research Department Publications, Inter-American Development Bank, Research Department 3118, Inter-American Development Bank, Research Department.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  7. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers, National Bureau of Economic Research, Inc 1838, National Bureau of Economic Research, Inc.
  8. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  9. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers, National Bureau of Economic Research, Inc 2428, National Bureau of Economic Research, Inc.
  10. Edwards, Sebastian, 1994. "The Political Economy of Inflation and Stabilization in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 42(2), pages 235-66, January.
  11. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(6), pages 1319-29, December.
  12. Juan P. Nicolini, 1993. "More on the time inconsistency of optimal monetary policy," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 56, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Eliana Cardoso, 1991. "From Inertia to Megainflation: Brazil in the 1980s," NBER Working Papers, National Bureau of Economic Research, Inc 3585, National Bureau of Economic Research, Inc.
  14. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 18(2), pages 203-20, April.
  15. Nicolini, Juan Pablo, 1998. "More on the time consistency of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 41(2), pages 333-350, April.
  16. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles, Harvard University Department of Economics 3451400, Harvard University Department of Economics.
  17. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262510944, December.
  18. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  19. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  20. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers, National Bureau of Economic Research, Inc 5191, National Bureau of Economic Research, Inc.
  21. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, Elsevier, vol. 54(2), pages 387-404, December.
  22. Ernesto H. Stein & Jeffry Frieden & Piero Ghezzi, 2000. "Politics and Exchange Rates: A Cross-Country Approach to Latin America," Research Department Publications, Inter-American Development Bank, Research Department 3119, Inter-American Development Bank, Research Department.
  23. Reinhart, Carmen & Vegh, Carlos, 1994. "Intertemporal consumption substitution and inflation stabilization:An empirical investigation," MPRA Paper, University Library of Munich, Germany 13427, University Library of Munich, Germany.
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