Exchange Rate Populism

Sainan Huang () and Cristina Terra
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Sainan Huang: Université de Cergy-Pontoise, THEMA and ESSEC School Business

No 2014-12, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: East Asian and Latin American economies present opposite exchange rate electoral cycles: exchange rates tend to be more depreciated before and appreciated after elections among East Asian economies, while the opposite is true in Latin America. We propose a explanation for these empirical findings where the driving force of the opposite exchange rate populism in these two regions is their difference in the relative size of tradable and non-tradable sectors, coupled with the distributive effect of exchange rates. In a setup where policy-makers differ in their preference bias towards non-tradable and tradable sectors, the exchange rate is used a noisy signal of the incumbent's type in an uncertain economic environment. The mechanism behind the cycle is engendered by the incumbent trying to signal he is median voter's type, biasing his policy in favor of the majority of the population before elections.

Date: 2014
New Economics Papers: this item is included in nep-cdm, nep-mon, nep-pol and nep-sea
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Related works:
Journal Article: Exchange Rate Populism (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2014-12

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