Elections%20and%20the%20Timing%20of%20Devaluations

Working Papers

Elections and the Timing of Devaluations


CODE: WP-396
AUTHOR(s): Stein, Ernesto H. , Streb, Jorge M.
PUBLISHED: January 1999
LANGUAGE: English
RELATED TOPICS: Macroeconomics
DOWNLOAD FILE IN: English

Abstract:

This paper presents a rational political budget cycle model for an open economy, in which devaluations are delayed in the pre-election period so as to increase the electoral chances of the party in office. By concentrating on closed economies, previous political cycle models had overlooked the influence of elections on the behavior of exchange rates. Voter uncertainty is introduced in two different dimensions. Not only are voters uncertain regarding the competency of the incumbent, but tey also ignore the degree to which the incumbent is opportunistic.

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