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The Role of Politics and Institutions in LDC Currency Devaluations

By Anja Shortland


This paper examines political, institutional and economic determinants of exchange\ud rate performance in less developed countries in the 1990s. It models exchange rate\ud depreciations as two separate processes, firstly a process determining whether a currency is devalued and secondly a process determining the size of devaluation. The\ud paper utilizes the most recent political and institutional data as well as a new index of central bank governor turnover in the 1990s to examine the relative importance of\ud political and economic factors. While institutional and political factors dominate the\ud probability of devaluation, the size of devaluations is mainly governed by economic factors

Topics: exchange rate systems, less developed countries, speculative attack, fundamentals, institutions
Publisher: Dept. of Economics, University of Leicester
Year: 2004
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