Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/50357
Authors: 
Dreher, Axel
Vaubel, Roland
Year of Publication: 
2007
Series/Report no.: 
KOF working papers // Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich 159
Abstract: 
By combining expansionary open market operations with sales of foreign exchange, the central bank can expand the monetary base without depreciating the exchange rate. Thus, if there is a monetary political business cycle, sales of foreign exchange are especially likely before elections. Our panel data analysis for up to 146 countries in 1975-2001 supports this hypothesis. Foreign exchange reserves relative to trend GDP depend negatively on the preelection index. The relationship is significant and robust irrespective of the type of electoral variable, the choice of control variables and the estimation technique.
Subjects: 
Foreign exchange interventions
political business cycles
JEL: 
F31
E58
Document Type: 
Working Paper

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