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ELECTIONS AND EXCHANGE RATE POLICY CYCLES
Author(s) -
Bonomo Marco,
Terra Cristina
Publication year - 2005
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.1468-0343.2005.00150.x
Subject(s) - depreciation (economics) , exchange rate , economics , imperfect , latin americans , monetary economics , government (linguistics) , perfect information , distributive property , international economics , monetary policy , macroeconomics , microeconomics , political science , profit (economics) , linguistics , philosophy , financial capital , capital formation , mathematics , law , pure mathematics
This paper presents a theoretical model based on the distributive effects of real exchange rate (RER) changes that generates RER electoral cycles of the type identified in Latin American countries: more appreciated RER before elections and more depreciated after elections. Typically, a RER depreciation favors exporters and import‐competing domestic industries, to the detriment of consumers. These RER cycles are generated by imperfect information on policy‐makers' preferences, which are concealed from voters with the help of an unstable macroeconomic environment. Exchange rate cycles result from the interplay between the electoral power of the non‐tradable sector and the tradable sector's ability to lobby the government.