Political Uncertainty and the Peso Problem
This paper analyses the relation between political uncertainty and the Peso Problem in emerging markets. Initially, it is assumed that the country has a hard peg system (the present government will never devalue). As for the political opposition, however, it is open to the possibility of leaving the fixed regime when it comes to power. Assuming that the change of government follows a Poisson distribution, our model shows that the expectations of a devaluation under the subsequent new government may drive up country risk premium under the first government. Sovereign spreads in Argentina in 2001 are used to illustrate the argument.
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- Ozkan, F. Gulcin & Sutherland, Alan, 1998.
"A currency crisis model with an optimising policymaker,"
Journal of International Economics,
Elsevier, vol. 44(2), pages 339-364, April.
- Gulcin Ozkan & Alan Sutherland, . "A Currency Crisis Model with an Optimising Policymaker," Discussion Papers 96/11, Department of Economics, University of York.
- Alberto Alesina & Sule Ozler & Nouriel Roubini & Phillip Swagel, 1992.
"Political Instability and Economic Growth,"
NBER Working Papers
4173, National Bureau of Economic Research, Inc.
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