Premium
THE POLITICAL CHOICE OF THE EXCHANGE RATE REGIME *
Author(s) -
RULAND L. J.,
VIAENE J.M.
Publication year - 1993
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/j.1468-0343.1993.tb00079.x
Subject(s) - economics , voting , exchange rate , speculation , maximization , exchange rate regime , volatility (finance) , welfare , politics , utility maximization , monetary economics , mathematical economics , microeconomics , econometrics , macroeconomics , market economy , political science , law
The purpose of this paper is to present a model in which the choice of the optimal exchange rate regime is envisaged in a political setting. We consider a country whose voting population comprises three types of agents, importers, exporters and speculators, who select their position on exchange rate policy according to welfare maximization. As a result, well‐defined interest groups are shown to emerge. Each coalition makes contributions to one of two political candidates running for political office in support for their optimal policy intervention. When policy pronouncements by the two candidates are made in terms of exchange rate volatility, the equilibrium consists of two extremes: a fixed versus flexible exchange regime, the latter with bounded volatility [JEL D72, F31].