Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121129
Authors: 
Furlan, Benjamin
Gächter, Martin
Krebs, Bob
Oberhofer, Harald
Year of Publication: 
2013
Series/Report no.: 
FIW Working Paper 125
Abstract: 
This paper empirically assesses how democratization affects real exchange rates. By doing this, we combine so far separated strands of the economic literature and argue that democratization reduces currency undervaluation leading to a real exchange rate appreciation. We test this hypothesis empirically for a sample of countries observed from 1980 to 2007 by combining a difference-in-difference (DID) approach with propensity score matching (PSM) estimators. Our results reveal a strong and significant finding: democratization causes real exchange rates to appreciate. Consequently, the ongoing process of democratization observed in a few Arabic and Moslem countries is likely to reduce exchange rate distortions.
Subjects: 
Real exchange rates
democratization
difference-in-differencesestimator
matching estimators
JEL: 
C21
C23
F02
F31
F59
N20
Document Type: 
Working Paper

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