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    Real Exchange Rates, Financial Repression and Political Regime Type - A Political Economy Analysis of Sustained Real Exchange Rate Undervaluation

    Cover for Real Exchange Rates, Financial Repression and Political Regime Type - A Political Economy Analysis of Sustained Real Exchange Rate Undervaluation
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    Creator
    Hipolit, John Andrew
    Advisor
    Kern, Andreas
    Abstract
    For a number of reasons, including enhanced economic growth, greater competitiveness for the export sector, and increased capital formation, governments might wish to undervalue their country's real exchange rate. However, pushing a key price of the global market like the real exchange rate out of equilibrium should, in theory, be unsustainable due to automatic adjustments in either the price level or the nominal exchange rate unless frictions are introduced into either of these two adjustment channels. I argue here that financial repression is a policy option that governments can pursue in order to introduce a substantial friction into the nominal exchange rate adjustment channel. Furthermore, I argue that due to the political costs associated with a sustained undervalued real exchange rate, such as repressed consumption and reduced purchasing power for the populace, autocracies are more likely to pursue these policies in order to achieve a sustained undervaluation. In order to test these hypothesized relationships, I use two random-effects logistic models to examine sustained periods of real exchange rate undervaluation lasting at least 3 and 4 years, respectively, and an ordinary least squares regression for a 5-year averaged dataset. I construct a main dataset consisting of 2591 country-year data points covering the time period of 1973-2005, and a 5-year averaged dataset consisting of 554 country-time-period data points covering 6 time periods. I draw on the work of Rodrik (2008) for my measure of real exchange rate undervaluation; Abiad, Detragiache, and Tressel (2010) and Ito and Chinn (2006) for my measures of financial repression; and Marshall and Jaggers (2002) for my measure of political system. Taken together, the results of these models provide support for the hypothesized relationship between autocracies and financial repression on the one hand, and a sustained undervaluation of the real exchange rate on the other hand.
    Description
    M.P.P.
    Permanent Link
    http://hdl.handle.net/10822/558652
    Date Published
    2013
    Subject
    Exchange Rate; Financial Repression; Political Economy; Regime Type; Undervalued Real Exchange Rate; Public policy; Economics; Public policy; Economics;
    Type
    thesis
    Publisher
    Georgetown University
    Extent
    53 leaves
    Collections
    • Graduate Theses and Dissertations - Public Policy
    Metadata
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    Georgetown University Seal
    ©2009 - 2022 Georgetown University Library
    37th & O Streets NW
    Washington DC 20057-1174
    202.687.7385
    digitalscholarship@georgetown.edu
    Accessibility