Advanced Search
MyIDEAS: Login to save this paper or follow this series

Democratization and real exchange rates

Contents:

Author Info

  • Furlan, Benjamin

    ()
    (University of Salzburg)

  • Gächter, Martin

    ()
    (Foreign Research Division, Oesterreichische Nationalbank)

  • Krebs, Bob

    ()
    (Economics and Research Department, Banque centrale du Luxembourg)

  • Oberhofer, Harald

    ()
    (University of Salzburg)

Abstract

This paper empirically assesses how democratization affects real exchange rates. Specifically, in line with the democratic peace theory we argue that democratization reduces currency undervaluation, and thus, might bring misalignments in foreign exchange markets to an end. We test this hypothesis for a sample of countries observed from 1980 to 2007. Econometrically, we combine a difference-in-difference (DID) approach with propensity score matching estimators. Our estimation results reveal that democratization causes real exchange rates to appreciate, lending empirical support to the democratic peace theory in this specific economic context.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.uni-salzburg.at/fileadmin/multimedia/SOWI/documents/working_papers/wp2012_no6_rev.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by University of Salzburg in its series Working Papers in Economics and Finance with number 2012-6.

as in new window
Length: 28 pages
Date of creation: 01 Jul 2012
Date of revision: 28 Oct 2013
Handle: RePEc:ris:sbgwpe:2012_006

Contact details of provider:
Postal: Kapitelgasse 5 - 7, 5020 Salzburg
Phone: +43 662 8044-3700
Fax: +43 662 8044-623
Web page: http://www.sbg.ac.at/wiw/home.htm
More information through EDIRC

Related research

Keywords: Real exchange rates; democratization; democratic peace theory; difference-in-differences-estimator; matching estimators;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Jesus Crespo Cuaresma & Harald Oberhofer & Paul Raschky, 2011. "Oil and the duration of dictatorships," Public Choice, Springer, vol. 148(3), pages 505-530, September.
  2. Papaioannou, Elias & Siourounis, Gregorios, 2008. "Economic and social factors driving the third wave of democratization," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 365-387, September.
  3. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 5.
  5. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  6. Nader Habibi & F. M. Bagheri, 1997. "Political Institutions and Central Bank Independence : A Cross Country Analysis," Departmental Working Papers 973, Bilkent University, Department of Economics.
  7. Blundell, Richard & Costa Dias, Monica, 2008. "Alternative Approaches to Evaluation in Empirical Microeconomics," IZA Discussion Papers 3800, Institute for the Study of Labor (IZA).
  8. Ph.R. Lane & G.M. Milesi-Ferretti, 2003. "External Wealth, the Trade Balance, and the Real Exchange Rate," DNB Staff Reports (discontinued) 80, Netherlands Central Bank.
  9. David Kucera & Ritash Sarna, 2006. "Trade Union Rights, Democracy, and Exports: a Gravity Model Approach," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 859-882, November.
  10. José Cheibub & Jennifer Gandhi & James Vreeland, 2010. "Democracy and dictatorship revisited," Public Choice, Springer, vol. 143(1), pages 67-101, April.
  11. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  12. MacDonald, Ronald, 1998. "What determines real exchange rates?: The long and the short of it," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 117-153, June.
  13. Jensen, Nathan M., 2003. "Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment," International Organization, Cambridge University Press, vol. 57(03), pages 587-616, June.
  14. Candelon, Bertrand & Kool, Clemens & Raabe, Katharina & van Veen, Tom, 2007. "Long-run real exchange rate determinants: Evidence from eight new EU member states, 1993-2003," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 87-107, March.
  15. Alan M. Taylor & Mark Taylor, 2004. "The Purchasing Power Parity Debate," Working Papers 46, University of California, Davis, Department of Economics.
  16. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
  17. Broz, J. Lawrence, 2002. "Political System Transparency and Monetary Commitment Regimes," International Organization, Cambridge University Press, vol. 56(04), pages 861-887, September.
  18. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  19. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  20. David H. Bearce & Mark Hallerberg, 2011. "Democracy And De Facto Exchange Rate Regimes," Economics and Politics, Wiley Blackwell, vol. 23(2), pages 172-194, 07.
  21. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  22. Mansfield, Edward D. & Milner, Helen V. & Rosendorff, B. Peter, 2002. "Why Democracies Cooperate More: Electoral Control and International Trade Agreements," International Organization, Cambridge University Press, vol. 56(03), pages 477-513, June.
  23. Clague, Christopher, 1986. "Determinants of the National Price Level: Some Empirical Results," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 320-23, May.
  24. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  25. George R. G. Clarke, 2001. "How institutional quality and economic factors impact technological deepening in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(8), pages 1097-1118.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ris:sbgwpe:2012_006. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Harald Oberhofer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.