Template-Type: ReDIF-Paper 1.0
Author-Name: Pablo Garofalo
Author-Name-First: Pablo
Author-Name-Last: Garofalo
Author-Name: Jorge M. Streb
Author-Name-First: Jorge M.
Author-Name-Last: Streb
Title: Broken promises: regime announcements and exchange rates around elections
Abstract: We study the relationship between exchange-rate regime announcements and exchange-rate dynamics by combining the IMF de jure and the Reinhart and Rogoff de facto exchange-rate regime classifications. Using monthly data from Latin American democracies, we do not identify significant exchange-rate depreciations before the change of government in any of the regimes, but we do identify an exchange-rate overvaluation when regimes are fixed inconsistent (i.e., the de jure regime announcement is fixed and differs from the de facto behavior). After the change of government, the overvaluation under fixed-inconsistent regimes is corrected through significant depreciations. We thus identify a pattern of broken promises by which incumbents delay devaluations under fixed-inconsistent announcements until after the change of government. Our results are robust even when we let the variance of the real exchange rate be autoregressive and conditional on regimes around government changes.	
Length: 33 pages
Creation-Date:  2020-11
File-URL: https://aaep.org.ar/works/works2020/Streb.pdf
File-Format: Application/pdf
Number: 4416
Classification-JEL:  D72, D78, E00 
Keywords:  exchange-rate regimes, exchange-rate overvaluations, electoral cycles
Handle: RePEc:aep:anales: 4416