Democratization and real exchange rates

Benjamin Furlan (), Martin Gächter, Bob Krebs and Harald Oberhofer
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Benjamin Furlan: University of Salzburg

No 2012-6, Working Papers in Economics from University of Salzburg

Abstract: This paper empirically assesses how democratization affects real exchange rates. Specifically, in line with the democratic peace theory we argue that democratization reduces currency undervaluation, and thus, might bring misalignments in foreign exchange markets to an end. We test this hypothesis for a sample of countries observed from 1980 to 2007. Econometrically, we combine a difference-in-difference (DID) approach with propensity score matching estimators. Our estimation results reveal that democratization causes real exchange rates to appreciate, lending empirical support to the democratic peace theory in this specific economic context.

Keywords: Real exchange rates; democratization; democratic peace theory; difference-in-differences-estimator; matching estimators (search for similar items in EconPapers)
JEL-codes: C21 C23 F02 F31 F59 N20 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-07-01, Revised 2013-10-28
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Democratization and Real Exchange Rates (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:sbgwpe:2012_006

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