Special Interests, Regime Choice, and Currency Collapse
AbstractWith 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5516.
Date of creation: 2006
Date of revision: 2007
Currency crisis; exchange rate policy; special interest politics; new open-economy macroeconomics;
Find related papers by JEL classification:
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-03 (All new papers)
- NEP-CDM-2007-11-03 (Collective Decision-Making)
- NEP-MAC-2007-11-03 (Macroeconomics)
- NEP-POL-2007-11-03 (Positive Political Economics)
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.:
- Ernesto H. Stein & Jorge M. Streb, 1999.
"Elections and the Timing of Devaluations,"
Research Department Publications
4164, Inter-American Development Bank, Research Department.
- 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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