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The Role of Politics and Institutions in LDC Currency Devaluations

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  • Anja Shortland

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Abstract

This paper examines political, institutional and economic determinants of exchange rate performance in less developed countries in the 1990s. It models exchange rate depreciations as two separate processes, firstly a process determining whether a currency is devalued and secondly a process determining the size of devaluation. The paper utilizes the most recent political and institutional data as well as a new index of central bank governor turnover in the 1990s to examine the relative importance of political and economic factors. While institutional and political factors dominate the probability of devaluation, the size of devaluations is mainly governed by economic factors.

Suggested Citation

  • Anja Shortland, 2004. "The Role of Politics and Institutions in LDC Currency Devaluations," Discussion Papers in Economics 04/30, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:04/30
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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp04-30.pdf
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    References listed on IDEAS

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    Cited by:

    1. van den Berg, Jeroen & Candelon, Bertrand & Urbain, Jean-Pierre, 2008. "A cautious note on the use of panel models to predict financial crises," Economics Letters, Elsevier, vol. 101(1), pages 80-83, October.

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