Electoral Cycles in International Reserves: Evidence from Latin America and the OECD

Serie Documentos de Trabajo, Universidad del CEMA - No. 526

42 Pages Posted: 18 Apr 2014

See all articles by Jorge M. Streb

Jorge M. Streb

Universidad del CEMA

Daniel Lema

Universidad del CEMA

Pablo Garofalo

University of Houston

Date Written: October 2013

Abstract

In Latin America there is ample evidence of exchange rate depreciations after elections. Hence, we turn to the behavior of international reserves over the 1980–2005 period to investigate if exchange rates are temporarily stabilized before elections. Using annual, quarterly, and monthly data to define the election year, we find that international reserves fall significantly before elections, which indeed suggests a policy of stabilizing exchange rates. The patterns observed in the region are not replicated in OECD countries. However, once we control for legislative checks and balances on executive discretion in countries with strong compliance with the law, the behavior of both regions becomes remarkably similar. We find that lower effective checks and balances can explain why reserves fall before elections in Latin America. The electoral cycles in reserves and exchange rates in Latin America can be interpreted in terms of the fiscal dominance of monetary policy.

Keywords: monetary policy, checks and balances, fiscal dominance, political budget cycles, temporal aggregation

JEL Classification: D72, D78, H60

Suggested Citation

Streb, Jorge Miguel and Lema, Daniel and Garofalo, Pablo, Electoral Cycles in International Reserves: Evidence from Latin America and the OECD (October 2013). Serie Documentos de Trabajo, Universidad del CEMA - No. 526, Available at SSRN: https://ssrn.com/abstract=2425787 or http://dx.doi.org/10.2139/ssrn.2425787

Jorge Miguel Streb (Contact Author)

Universidad del CEMA ( email )

Av. Cordoba 374
Buenos Aires, CABA
Argentina

HOME PAGE: http://www.ucema.edu.ar/u/jms/

Daniel Lema

Universidad del CEMA ( email )

1054 Buenos Aires
Argentina

Pablo Garofalo

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

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