Political Announcements and Exchange Rate Expectations
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Published
Nov 22, 2019
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Abstract
Exchange rate fluctuations in a small open economy are closely related to political trust. Various political announcements exert significant influence on the exchange rate by affecting the expectations of economic actors. Due to information technology and social networks, these statements spread quicker and gain more publicity than ever before. In this paper, we present a dynamic model with adaptive expectations to describe the short and long-run effects of political announcements on the exchange rate. We found that relevant announcements cause significant fluctuations in the short-run but do not affect the long-term equilibrium exchange rate. Our results are also supported by case-studies from Hungary.
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How to Cite
Tóth-Bozó, B. and Szalai, L. (2019) “Political Announcements and Exchange Rate Expectations”, World Journal of Applied Economics, 5(2), pp. 53-66. doi: 10.22440/wjae.5.2.2.
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Research Articles
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References
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Mundell, R. A. (1963). Capital Mobility and Stabilization under Fixed and Flexible Exchange Rates: A Comment. The Canadian Journal of Economics and Political Science, 29 (4), 475-85. doi:10.2307/139707
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Niederhoffer, V. (1971). The Analysis of World Events and Stock Prices. The Journal of Business, 44 (2), 193-219. doi:10.1086/295352
Samuelson, P. A. (1964). Theoretical Notes on Trade Problems. The Review of Economics and Statistics, 46 (2), 145-54. doi:10.2307/1928178
Sohu, J. M., Junejo, I., & Hussain, F. (2019). The Impact of Corruption on Exchange Rate: Empirical Evidence from Panel Data. Sukkur IBA Journal of Management and Business, 6 (1). doi:10.30537/sijmb.v6i1.264
Blomberg, S. B., & Hess, G. D. (1997). Politics and Exchange Rate Forecasts. Journal of International Economics, 43 (1-2), 189-205. doi:10.1016/S0022-1996(96)01466-3.
Bollen, J., Mao, H., & Pepe, A. (2011). Modeling Public Mood and Emotion: Twitter Sentiment and Socio-Economic Phenomena. In The Fifth International AAAI Conference on Weblogs and Social Media (p. 450-53). https://www.aaai.org/ocs/index.php/ICWSM/ICWSM11/paper/viewPaper/2826.
Bond, R. M., Fariss, C. J., Jones, J. J., Kramer, A. D. I., Marlow, C., Settle, J. E., & Fowler, J. H. (2012). A 61-million-person Experiment in Social Infuence and Political Mobilization. Nature, 489 (7415), 295-98. doi:10.1038/nature11421
Cosset, J.-C., & de la Rianderie, B. D. (1985). Political Risk and Foreign Exchange Rates: An Efficient-markets Approach. Journal of International Business Studies, 16 (3), 21-55. doi:10.1057/palgrave.jibs.8490458
Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 84 (6), 1161-76. doi:10.1086/260506
Frenkel, J. A. (1982). Flexible Exchange Rates, Prices and the Role of "News": Lessons from the 1970s. In R. A. Batchelor & G. E. Wood (Eds.), Exchange Rate Policy (pp. 48-92). London: Palgrave Macmillan UK. doi:10.1007/978-1-349-16863-7
Galor, O. (2004). Introduction to Stability Analysis of Discrete Dynamical Systems (Tech. Rep. No. 0409011). University Library of Munich, Germany. https://ideas.repec.org/p/wpa/wuwpma/0409011.html
Galor, O. (2005). Discrete Dynamical Systems (Tech. Rep.). University Library of Munich, Germany. https://EconPapers.repec.org/RePEc:wpa:wuwpge:0504001
Gil de Zuniga, H., Jung, N., & Valenzuela, S. (2012). Social Media Use for News and Individuals' Social Capital, Civic Engagement and Political Participation. Journal of Computer-Mediated Communication, 17 (3), 319-36. doi:10.1111/j.1083-6101.2012.01574.x
Hetherington, M. J. (1998). The Political Relevance of Political Trust. American Political Science Review, 92 (4), 791-808. doi:10.2307/2586304
Kaiser, U. (1997). The Impact of Political Announcements on Expectations Concerning the Starting Date of the EMU (Discussion Papers No. 97-31). ZEW.
Mundell, R. A. (1963). Capital Mobility and Stabilization under Fixed and Flexible Exchange Rates: A Comment. The Canadian Journal of Economics and Political Science, 29 (4), 475-85. doi:10.2307/139707
Mussa, M. (1976). The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating. Scandinavian Journal of Economics, 78 (2), 229-48. doi:10.2307/3439926
Niederhoffer, V. (1971). The Analysis of World Events and Stock Prices. The Journal of Business, 44 (2), 193-219. doi:10.1086/295352
Samuelson, P. A. (1964). Theoretical Notes on Trade Problems. The Review of Economics and Statistics, 46 (2), 145-54. doi:10.2307/1928178
Sohu, J. M., Junejo, I., & Hussain, F. (2019). The Impact of Corruption on Exchange Rate: Empirical Evidence from Panel Data. Sukkur IBA Journal of Management and Business, 6 (1). doi:10.30537/sijmb.v6i1.264