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Political Announcements and Exchange Rate Expectations

Brigitta Toth-Bozo () and Laszlo Szalai ()
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Brigitta Toth-Bozo: Budapest University of Technology and Economics
Laszlo Szalai: Budapest University of Technology and Economics

World Journal of Applied Economics, 2019, vol. 5, issue 2, 53-66

Abstract: Exchange rate fluctuations in a small open economy are closely related to political trust. Various political announcements exert significant in uence on the exchange rate by affecting the expectations of economic actors. Due to information technology and social networks, these statements spread quicker and gain more publicity than ever before. In this paper, we present a dynamic model with adaptive expectations to describe the short and long-run effects of political announcements on the exchange rate. We found that relevant announcements cause significant fluctuations in the short-run but do not affect the long-term equilibrium exchange rate. Our results are also supported by case-studies from Hungary.

Keywords: Dynamic model; Political announcements; Exchange rate; Adaptive expectations (search for similar items in EconPapers)
JEL-codes: C61 C62 D84 F31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.22440/wjae.5.2.2

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Handle: RePEc:ana:journl:v:5:y:2019:i:2:p:53-66