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Special Interests, Regime Choice, and Currency Collapse

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  • Lim, Jamus Jerome

Abstract

With heterogeneous productivity and sticky prices in the short run, exchange rate changes can generate real effects on agents in the economy; the result is that the currency regime becomes a policy variable amenable to political competition. This paper discusses how special interests and government policymakers interact in the decisionmaking processes concerning the optimal level of the exchange rate, and how these interactions may lead to a disconnect between the exchange rate and economic fundamentals which---under appropriate conditions---may affect the timing, and possibility, of a currency crisis. The model is also tested empirically with exchange rate data from 25 countries.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5516.

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Date of creation: 2006
Date of revision: 2007
Handle: RePEc:pra:mprapa:5516

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Related research

Keywords: Currency crisis; exchange rate policy; special interest politics; new open-economy macroeconomics;

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  1. Ernesto H. Stein & Jorge M. Streb, 1999. "Elections and the Timing of Devaluations," IDB Publications 6452, Inter-American Development Bank.
  2. Laura Alfaro, 2002. "On the Political Economy of Temporary Stabilization Programs," Economics and Politics, Wiley Blackwell, vol. 14(2), pages 133-161, 07.
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