Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71854
Authors: 
Furlan, Benjamin
Gächter, Martin
Krebs, Bob
Oberhofer, Harald
Year of Publication: 
2012
Series/Report no.: 
Working Papers in Economics and Finance, University of Salzburg 2012-06
Abstract: 
This paper empirically assesses how democratization affects real exchange rates. Specifically, in line with the democratic peace theory we argue that democratization reduces currency undervaluation, and thus, might bring misalignments in foreign exchange markets to an end. We test this hypothesis for a sample of countries observed from 1980 to 2007. Econometrically, we combine a difference-in-difference (DID) approach with propensity score matching estimators. Our estimation results reveal that democratization causes real exchange rates to appreciate, lending empirical support to the democratic peace theory in this specific economic context.
Subjects: 
Real exchange rates
democratization
democratic peace theory
difference-in-differences-estimator
matching estimators
JEL: 
C21
C23
F02
F31
F59
N20
Document Type: 
Working Paper

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