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Political Conditions and Currency Crises: Empirical Regularities in Emerging Markets

Author

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  • Steven A. Block

Abstract

This paper demonstrates the impact of structural political conditions on the likelihood of currency crises in emerging markets. Controlling for a standard and parsimonious set of macroeconomic variables, I find that: left-wing government is more conducive to currency crises; democracies are less vulnerable; and strong governments (those with larger legislative majorities and those which face more fragmented legislative opposition) are also less vulnerable. In contrast to previous studies, I also find elections (and executive change) not to be associated with currency crises. Despite the strong statistical association between currency crises and these political variables, in- and out-of-sample predictions demonstrate the remaining difficulty of predicting the timing of currency crises.

Suggested Citation

  • Steven A. Block, 2002. "Political Conditions and Currency Crises: Empirical Regularities in Emerging Markets," CID Working Papers 79A, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:79a
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    File URL: https://www.hks.harvard.edu/sites/default/files/centers/cid/files/publications/faculty-working-papers/079.pdf
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    Citations

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    Cited by:

    1. Cristiano Prado Martins Barbosa, 2004. "Fatores Políticos E Institucionais: Impactos Sobre Paradas Bruscas De Financiamento Externo," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 070, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Puspa D. Amri & Thomas D. Willett, 2017. "Policy Inconsistencies and the Political Economy of Currency Crises," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-24, February.
    3. Hasan Vergil & Erdogan Teyyare, 2017. "Crisis, Institutional Quality and Economic Growth," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 31(2), pages 1-19.
    4. María Luisa Saavedra García, 2008. "American financial crisis and its impact on Mexican economy," Economía, Instituto de Investigaciones Económicas y Sociales (IIES). Facultad de Ciencias Económicas y Sociales. Universidad de Los Andes. Mérida, Venezuela, vol. 33(26), pages 11-41, july-dece.
    5. Gerardo Esquivel & Felipe Larraín, 2003. "¿Qué Sabemos Realmente sobre las Crisis Cambiarias?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 656-667.
    6. Pattama L. Shimpalee & Janice Boucher Breuer, 2007. "An event study of institutions and currency crises," Review of Financial Economics, John Wiley & Sons, vol. 16(3), pages 274-290.
    7. Shimpalee, Pattama L. & Breuer, Janice Boucher, 2006. "Currency crises and institutions," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 125-145, February.
    8. Shimpalee, Pattama L. & Breuer, Janice Boucher, 2007. "An event study of institutions and currency crises," Review of Financial Economics, Elsevier, vol. 16(3), pages 274-290.

    More about this item

    Keywords

    currency crises; politics; emerging markets;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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