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How do exchange rates respond to political rhetoric by populist leaders?

Author

Listed:
  • Cem Cakmakli

    (Department of Economics, Koç University)

  • Selva Demiralp

    (Department of Economics, Koç University)

  • Gokhan Sahin Gunes

    (BETAM, Bahcesehir University)

Abstract

With the global rise in authoritarianism, there has been an increase in political commentaries by the populist leaders that have criticized their central banks in favor of lower interest rates. We analyze the effects of these political pressures on exchange rates. We provide strong empirical evidence where political commentaries affect both the level and the volatility of exchange rate returns. The intensity of political pressures as well as institutional strength play a key role in determining the size of the impact.

Suggested Citation

  • Cem Cakmakli & Selva Demiralp & Gokhan Sahin Gunes, 2021. "How do exchange rates respond to political rhetoric by populist leaders?," Koç University-TUSIAD Economic Research Forum Working Papers 2112, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:2112
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    More about this item

    Keywords

    Political pressure; exchange rate; time inconsistency; populism.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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