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Political Announcements and Exchange Rate Expectations

Author

Listed:
  • Brigitta Toth-Bozo

    (Budapest University of Technology and Economics)

  • Laszlo Szalai

    (Budapest University of Technology and Economics)

Abstract

Exchange rate fluctuations in a small open economy are closely related to political trust. Various political announcements exert significant in uence on the exchange rate by affecting the expectations of economic actors. Due to information technology and social networks, these statements spread quicker and gain more publicity than ever before. In this paper, we present a dynamic model with adaptive expectations to describe the short and long-run effects of political announcements on the exchange rate. We found that relevant announcements cause significant fluctuations in the short-run but do not affect the long-term equilibrium exchange rate. Our results are also supported by case-studies from Hungary.

Suggested Citation

  • Brigitta Toth-Bozo & Laszlo Szalai, 2019. "Political Announcements and Exchange Rate Expectations," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 5(2), pages 53-66, December.
    • Handle: RePEc:ana:journl:v:5:y:2019:i:2:p:53-66
    DOI: 10.22440/wjae.5.2.2
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic model; Political announcements; Exchange rate; Adaptive expectations;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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