Elections and Exchange Rate Policy Cycles
This paper presents a theoretical model based on the distributive effects of real exchange rate (RER) changes that generates RER electoral cycles of the type identified in Latin American countries: more appreciated RER before elections and more depreciated after elections. Typically, a RER depreciation favors exporters and import-competing domestic industries, to the detriment of consumers. These RER cycles are generated by imperfect information on policy-makers' preferences, which are concealed from voters with the help of an unstable macroeconomic environment. Exchange rate cycles result from the interplay between the electoral power of the non-tradable sector and the tradable sector's ability to lobby the government. Copyright Blackwell Publishing Ltd 2005.
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