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Wall Street and Elections in Latin American Emerging Economies

  • Sebastián Nieto Parra
  • Javier Santiso

Political cycles represent a core issue for capital markets in developing and emerging countries. This paper analyses the intricate links between financial markets and emerging democracies and highlights changes in the ways analysts and investors react to political cycles in emerging markets. Financial markets have, in the past, been particularly sensitive to political events. All the major financial crises in Latin America of the past decade and a half took place during an election year. Even in 2006, an unusually calm period in light of the number of presidential elections, markets remained highly sensitivity to elections: the day following Felipe Calderón's narrow victory in July's 2006 Mexican presidential elections, the stock market gained almost 5 per cent in a day, bond prices soared and the peso saw its biggest one-day appreciation in six years.

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File URL: http://dx.doi.org/10.1787/227672650832
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Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 272.

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Date of creation: Oct 2008
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Handle: RePEc:oec:devaaa:272-en
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  1. Javier Rodríguez & Javier Santiso, 2007. "Banking on Democracy: The Political Economy of International Private Bank Lending in Emerging Markets," OECD Development Centre Working Papers 259, OECD Publishing.
  2. Steven A. Block & Burkhard N. Schrage & Paul M. Vaaler, 2003. "DEMOCRACY’S SPREAD: Elections and Sovereign Debt in Developing Countries," William Davidson Institute Working Papers Series 2003-575, William Davidson Institute at the University of Michigan.
  3. 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. 0, pages 203-225, November.
  4. Bussiere, Matthieu & Mulder, Christian, 2000. "Political Instability and Economic Vulnerability," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(4), pages 309-30, October.
  5. Jorge M. Streb, 2001. "Signaling in Political Cycles. How far are you willing to go?," CEMA Working Papers: Serie Documentos de Trabajo. 193, Universidad del CEMA.
  6. Martínez, Juan & Santiso, Javier, 2003. "Financial Markets and Politics: The Confidence Game in Latin American Emerging Economies," MPRA Paper 12909, University Library of Munich, Germany.
  7. Reisen, Helmut, 2002. "Ratings since the Asian Crisis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. repec:tpr:intorg:v:56:y:2002:i:4:p:751-774 is not listed on IDEAS
  9. Jorge Blazquez & Javier Santiso, 2003. "Mexico, ¿un ex-emergente?," Working Papers 0301, BBVA Bank, Economic Research Department.
  10. Marcela Eslava, 2006. "The Political Economy of Fiscal Policy: Survey," IDB Publications (Working Papers) 40058, Inter-American Development Bank.
  11. Block, Steven A., 2002. "Political business cycles, democratization, and economic reform: the case of Africa," Journal of Development Economics, Elsevier, vol. 67(1), pages 205-228, February.
  12. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, World Bank Group, vol. 16(2), pages 151-170, August.
  13. Block, Steven A. & Vaaler, Paul M., 2004. "The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 917-946, October.
  14. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2007. "Partisan Impacts on the Economy: Evidence From Prediction Markets and Close Elections," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 807-829, 05.
  15. Marco Bonomo & Cristina Terra, 2005. "Elections And Exchange Rate Policy Cycles," Economics and Politics, Wiley Blackwell, vol. 17, pages 151-176, 07.
  16. Allan Drazen & Marcela Eslava, 2005. "Electoral Manipulation via Expenditure Composition: Theory and Evidence," NBER Working Papers 11085, National Bureau of Economic Research, Inc.
  17. Jeffry Frieden & David Leblang & Neven Valev, 2010. "The political economy of exchange rate regimes in transition economies," The Review of International Organizations, Springer, vol. 5(1), pages 1-25, March.
  18. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, June.
  19. repec:idb:brikps:77398 is not listed on IDEAS
  20. Piero Ghezzi & Ernesto Stein & Jorge M. Streb, 2000. "Real exchange rate cycles around elections," CEMA Working Papers: Serie Documentos de Trabajo. 174, Universidad del CEMA.
  21. Khemani, Stuti, 2000. "Political cycles in a developing economy - effect of elections in Indian States," Policy Research Working Paper Series 2454, The World Bank.
  22. Block, Steven A., 2003. "Political conditions and currency crises in emerging markets," Emerging Markets Review, Elsevier, vol. 4(3), pages 287-309, September.
  23. Sebastián Nieto Parra & Javier Santiso, 2007. "The Usual Suspects: A Primer on Investment Banks' Recommendations and Emerging Markets," OECD Development Centre Working Papers 258, OECD Publishing.
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