Elections and Exchange Rate Policy Cycles

26 Pages Posted: 2 Oct 2005

See all articles by Marco Bonomo

Marco Bonomo

Insper Institute of Education and Research

Maria Cristina T. Terra

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finan├žas

Abstract

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.

Suggested Citation

Bonomo, Marco and Trindade Terra, Maria Cristina, Elections and Exchange Rate Policy Cycles. Economics & Politics, Vol. 17, No. 2, pp. 151-176, July 2005, Available at SSRN: https://ssrn.com/abstract=791838

Marco Bonomo (Contact Author)

Insper Institute of Education and Research ( email )

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Maria Cristina Trindade Terra

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finan├žas ( email )

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