IDEAS home Printed from https://ideas.repec.org/p/ude/wpaper/1800.html
   My bibliography  Save this paper

Is the exchange rate politically manipulated around elections? The evidence from Uruguay

Author

Listed:
  • Diego Aboal

    () (Centro de Investigaciones Económicas (CINVE, Uruguay))

  • Fernando Lorenzo

    () (Centro de Investigaciones Económicas (CINVE-Uruguay) and Departamento de Economía. Facultad de Ciencias Sociales. Universidad de la República)

  • Andrés Rius

    () (Departamento de Economía. Facultad de Ciencias Sociales. Universidad de la República. International Development Research Center (IDRC, Latin America and the Caribbean Regional Office))

Abstract

In a small open economy, the exchange rate is a key variable from the perspective of the political economy of macro policy. It is, indeed, one of the most powerful instruments that governments can use to achieve their goals. Recent theories of political macroeconomics stress that maximization of social welfare may be just one, and perhaps not the most relevant, of such goals. Others include politicians’ own permanence in power and serving the interests of specific constituencies. This paper seeks to determine the pertinence for the Uruguayan economy of the recent literature on the political economy of exchange rate management. The predictions of various theoretical models are summarized, along with the stylized facts identified in a series of recent empirical studies. After a brief discussion on the advantages of alternative specifications to test for political cycles in the exchange rate, the theoretical predictions and stylized facts are confronted with the evidence for Uruguay since 1920. The analysis shows empirical regularities consistent with political manipulation of the exchange rate around elections.

Suggested Citation

  • 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.
  • Handle: RePEc:ude:wpaper:1800
    as

    Download full text from publisher

    File URL: http://decon.edu.uy/publica/2000/Doc1800.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1991. "Macroeconomic Policy and Elections in OECD Democracies," NBER Working Papers 3830, National Bureau of Economic Research, Inc.
    2. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    3. Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June.
    4. William D. Nordhaus, 1989. "Alternative Approaches to the Political Business Cycle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 1-68.
    5. Marco Bonomo & Cristina Terra, 2005. "Elections And Exchange Rate Policy Cycles," Economics and Politics, Wiley Blackwell, vol. 17, pages 151-176, July.
    6. 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.
    7. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
    8. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
    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. 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.
    11. Lourdes Rodríguez Chamussy, 2015. "Local Electoral Rewards from Centralized Social Programs: Are Mayors Getting the Credit?," IDB Publications (Working Papers) 6802, Inter-American Development Bank.
    12. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    13. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    political cycles; exchange rate policy; time series models.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ude:wpaper:1800. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andrea Doneschi) or (Héctor Pastori). General contact details of provider: http://edirc.repec.org/data/derauuy.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.