NDLI: Policy Responses to Balance-of-Payments Crises: The Role of Elections

Content Provider	Springer Nature Link
Author	Broz, J. Lawrence Duru, Maya J. Frieden, Jeffry A.
Copyright Year	2016
Abstract	Governments have a number of policy tools that can be used to address pressure on the balance of payments, threatening an undesirable decline in the relative value of the national currency. They can: (1) sell reserves, (2) raise interest rates, (3) impose capital controls, (4) apply trade restrictions, or (5) depreciate the currency. While researchers typically analyze these policies in isolation from one another, we treat them as a menu of options available to election-minded politicians. We analyze the use of these five policy responses to payments difficulties for a large sample of countries since the early 1970s. We argue that governments try to minimize political costs by adopting less transparent policies first and only moving to more visible policies as necessary, delaying the most visible and politically costly policies until after elections. The evidence is consistent with these claims: governments are more likely to draw down reserves and impose capital controls before other options. If these policies do not succeed, they tend to raise interest rates. If further action is needed, they delay devaluations and trade protection until after elections.
Starting Page	207
Ending Page	227
Page Count	21
File Format	PDF
ISSN	09237992
Journal	Open Economies Review
Volume Number	27
Issue Number	2
e-ISSN	1573708X
Language	English
Publisher	Springer US
Publisher Date	2016-02-02
Publisher Place	New York
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Currency crises Balance-of-payments adjustment Capital controls Devaluations Trade protection Trilemma Elections International Economics Development Economics European Integration Macroeconomics/Monetary Economics//Financial Economics Economic Policy
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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