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The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview

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  • Ernesto H. Stein
  • Jeffry Frieden

Abstract

Exchange rates have been central to the course of economic development in Latin America for decades. From the heyday of import substitution in the 1960s to the rapid expansion of foreign debt in the 1970s, from the debt crisis and its troubled aftermath in the 1980s to the rekindling of growth and borrowing in the 1990s, the exchange rate has been crucial to the mix of government policies that has shaped the region. Indeed, many analysts regard exchange rate policy as a major determinant of other economic outcomes, such as adjustment to the oil shocks of the 1970s and the debt crisis of the 1980s (Sachs, 1985). And currency policies have themselves been at the center of some of the regions most prominent economic processes and events, such as liberalizing reforms in the Southern Cone between 1976 and 1982, the Mexican crises of 1982 and 1994, Argentina's adoption of a currency board in 1991, Brazil's 1999 currency crisis, and ongoing discussions of dollarization.

Suggested Citation

  • Ernesto H. Stein & Jeffry Frieden, 2000. "The Political Economy of Exchange Rate Policy in Latin America: An Analytical Overview," Research Department Publications 3118, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3118
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    References listed on IDEAS

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    2. Marco Bonomo & Maria Cristina Terra, 1998. "The political economy of exchange rate policy in Brazil, 1964-1997," Textos para discussão 395, Department of Economics PUC-Rio (Brazil).
    3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    4. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December.
    5. José De Gregorio, 1999. "Exchange Rate Policy in Chile since 1960: Political Economy and the Choice of Regime," Research Department Publications 3076, Inter-American Development Bank, Research Department.
    6. Rogowski, Ronald, 1987. "Trade and the variety of democratic institutions," International Organization, Cambridge University Press, vol. 41(02), pages 203-223, March.
    7. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
    8. Guillermo Calvo & Carlos A. Végh Gramont, 1990. "Credibility and the Dynamics of Stabilization Policy; A Basic Framework," IMF Working Papers 90/110, International Monetary Fund.
    9. Clark, William Roberts & Reichert, Usha Nair & Lomas, Sandra Lynn & Parker, Kevin L., 1998. "International and Domestic Constraints on Political Business Cycles in OECD Economies," International Organization, Cambridge University Press, vol. 52(01), pages 87-120, December.
    10. Eugenio Diaz Bonilla & Hector E. Schamis, 1999. "The Political Economy of Exchange Rate Policies in Argentina," Research Department Publications 3078, Inter-American Development Bank, Research Department.
    11. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-rate Commitments," International Organization, Cambridge University Press, vol. 53(01), pages 71-97, December.
    12. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
    13. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 1999. "The political economy of exchange rate policy in Brazil: 1964-1999," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 341, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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    Cited by:

    1. Alberto Alesina & Alberto Carrasquilla & Roberto Steiner, 2000. "The Central Bank in Colombia," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 002458, FEDESARROLLO.
    2. Juan C. Jaramillo & Roberto Steiner & Natalia Salazar, 1999. "The Political Economy of Exchange Rate Policy in Colombia," Research Department Publications 3064, Inter-American Development Bank, Research Department.
    3. Andrés Mejía Acosta & María Caridad Araujo & Anibal Pérez-Liñán & Sebastian Saiegh, 2006. "Actores con veto, instituciones caprichosas y políticas de mala calidad: el proceso de diseño de políticas de Ecuador," Research Department Publications 3227, Inter-American Development Bank, Research Department.
    4. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
    5. AsIcI, Ahmet AtIl, 2011. "Exchange rate regime choice and currency crises," Economic Systems, Elsevier, vol. 35(3), pages 419-436, September.
    6. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
    7. Stein, Ernesto H. & Streb, Jorge M., 2004. "Elections and the timing of devaluations," Journal of International Economics, Elsevier, vol. 63(1), pages 119-145, May.
    8. Berdiev, Aziz N. & Kim, Yoonbai & Chang, Chun Ping, 2012. "The political economy of exchange rate regimes in developed and developing countries," European Journal of Political Economy, Elsevier, vol. 28(1), pages 38-53.
    9. Ernesto H. Stein & Jorge M. Streb & Piero Ghezzi, 2005. "Real Exchange Rate Cycles Around Elections," Economics and Politics, Wiley Blackwell, vol. 17(3), pages 297-330, November.
    10. Bonomo, Marco Antônio Cesar & Terra, Maria Cristina T., 1999. "The political economy of exchange rate policy in Brazil: 1964-1999," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 341, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    11. Marco Bonomo & Maria Cristina Terra, 1998. "The political economy of exchange rate policy in Brazil, 1964-1997," Textos para discussão 395, Department of Economics PUC-Rio (Brazil).
    12. Kaplan, Stephen B., 2006. "The political obstacles to greater exchange rate flexibility in China," World Development, Elsevier, vol. 34(7), pages 1182-1200, July.
    13. Vladimir Klyuev, 2001. "A Model of Exchange Rate Regime Choice in the Transitional Economies of Central and Eastern Europe," IMF Working Papers 01/140, International Monetary Fund.
    14. Ernesto H. Stein & Jorge M. Streb, 1999. "Las elecciones y el momento de las devaluaciones," Research Department Publications 4165, Inter-American Development Bank, Research Department.
    15. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "¿Por qué los países tienen los regímenes de cambio flotante que tienen?," Research Department Publications 4206, Inter-American Development Bank, Research Department.
    16. Feryel Ouerghi, 2013. "Global Financial Crisis: Did Exchange Rate Politics Help Emerging Countries To Be More Resilient," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 949-963.
    17. Andrés Mejía Acosta & María Caridad Araujo & Anibal Pérez-Liñán & Sebastian Saiegh, 2006. "Veto Players, Fickle Institutions and Low-Quality Policies: The Policymaking Process in Ecuador," Research Department Publications 3226, Inter-American Development Bank, Research Department.
    18. Vladimir Klyuev, 2003. "The Distributional Consequences of Real Exchange Rate Adjustment," IMF Working Papers 03/133, International Monetary Fund.
    19. S. Brock Blomberg & Jeffry Frieden & Ernesto Stein, 2005. "Sustaining fixed rates: The political economy of currency pegs in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 203-225, November.
    20. Diego Aboal & Fernando Lorenzo & Andrés Rius, 2000. "Is the exchange rate politically manipulated around elections? The evidence from Uruguay," Documentos de Trabajo (working papers) 1800, Department of Economics - dECON.
    21. Fernández Jardón, C. Mª & Figueroa Dorrego, P. & Lorenzo Santamaría, H. & Segade Pérez, R., 1999. "Una tipología de la empresa gallega en función de la jerarquización y el tramo de control," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 13, pages 51-64, Diciembre.

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