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Policy Signaling and Foreign Electoral Uncertainty: Implications for Currency Markets
International Studies Quarterly ( IF 2.799 ) Pub Date : 2021-10-10 , DOI: 10.1093/isq/sqab078
Alexander Slaski 1
Affiliation  

This paper examines the effects of foreign electoral shocks on currency markets. I develop a theory of signaling and uncertainty to explain why elections in countries with close economic ties should affect exchange rates. Methodologically, this paper focuses on several case studies, with the 2016 US election as a central case. I utilize an event analysis framework to measure the impact of the election on the Mexican peso by exploiting the plausible exogeneity of Donald Trump's tweets. I also measure changes in the peso using Trump's predicted chance of winning the election and show that the peso is weakest when Trump has the highest chance of winning the election. In addition, I include a series of robustness checks and analyses of other notable recent cases when electoral uncertainty affected currencies in other countries, including the 2018 Brazilian election. The results quantify the effect of foreign elections on exchange rates, building on the existing literature that focuses on how domestic elections shape currency markets. I conclude with a discussion of the external validity of the phenomenon demonstrated by the cases in the paper, charting future research on the topic and outlining ways to extend the findings.

中文翻译:

政策信号和外国选举的不确定性:对货币市场的影响

本文研究了外国选举冲击对货币市场的影响。我提出了一种信号和不确定性理论来解释为什么经济联系密切的国家的选举会影响汇率。在方法论上,本文侧重于几个案例研究,以 2016 年美国大选为中心案例。我利用事件分析框架通过利用唐纳德特朗普推文的合理外生性来衡量选举对墨西哥比索的影响。I also measure changes in the peso using Trump's predicted chance of winning the election and show that the peso is weakest when Trump has the highest chance of winning the election. 此外,我还包括了一系列稳健性检查和对近期其他值得注意的案例的分析,这些案例中选举的不确定性影响了其他国家的货币,包括 2018 年巴西大选。结果量化了外国选举对汇率的影响,建立在关注国内选举如何塑造货币市场的现有文献的基础上。最后,我讨论了论文中案例所证明的现象的外部有效性,规划了该主题的未来研究,并概述了扩展研究结果的方法。
更新日期:2021-10-10
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