Why are realignments postponed? A model of exchange rate revisions with opportunistic governments
AbstractIn this paper we investigate the consequences of elections on the willingness of office-motivated governments to defend a pre-announced parity in the presence of output shocks in a fixed exchange rate regime with an escape clause. Knowing that voters rationally interpret realignments as a sign of incompetence, incumbents refrain from realigning before elections. They can do so either when they are competent or when shocks are small enough. Realignments are therefore more likely and output is less volatile on the morrow than on the eve of elections. The welfare impact of elections is ambiguous. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/8380.
Date of creation: Jun 2004
Date of revision:
Publication status: Published in: The Manchester School (2004) v.72 n° 3,p.298-316
Other versions of this item:
- Pierre-Guillaume MÈon, 2004. "Why are realignments postponed? A model of exchange rate revisions with opportunistic governments," Manchester School, University of Manchester, vol. 72(3), pages 298-316, 06.
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