The Dictator and the Parties A Study on Policy Co-operation in Mineral Economies

This paper develops a game to study the possibility of co-operative behaviour in a situation where the political system is dominated by two strong, opportunistic parties competing in an economy highly dependent on the export of a commodity. Since a binding agreement as an external solution is unlikely to succeed due to the close association between the incumbent party and the government (the guardian), the paper explores the extent to which co-operation between political parties that alternate in office can rely on self-enforcing strategies to provide an internal solution. For appropriate values of the probability of re-election and the discount factor, it is possible to rely on reciprocity to sustain an early-stopping equilibrium. However, cooperation is undermined by low values of re-election probability out of current revenues and party myopia. In those circumstances, the self-policing solution might not be viable and an institutional response would be necessary. The game also sheds some light on the apparent paradox of situations in some mineral- rich democracies (such as the recent Venezuelan experience) where the enjoyment of considerable external revenues is followed by a period of economic stagnation, a deterioration of political stability, and the surge of a dictatorship threat.Political Economy, Non-cooperative games, Democracy, Mineral Economies, Venezuela

Real Exchange Rates in Latin America: what does the 20th Century reveal?

Using a new data set for the whole period 1900-2005, this paper analyses the behaviour of real multilateral exchange rates in the six largest economies of Latin America. The main aims are to identify any trends or shifts in the equilibrium position and to test for mean reversion. The key findings are the following: i) evidence of real depreciation at the end of the period, compared to the starting position; ii) significant differences in real exchange rates derived using symmetric and asymmetric definitions; iii) a moderate level of intracountry synchronicity, though results vary across periods and pairs of countries; iv) not rejection of the unit-root hypothesis for the series in levels; however, v) the series can be made stationary after allowing for trends structural breaks. For the adjusted series, the half-life of the process ranges from 0.8 to 2.5 years.

Real exchange rates in Latin America : what does the 20th century reveal?.

Using a new data set for the whole period 1900-2005, this paper analyses the behaviour of real multilateral exchange rates in the six largest economies of Latin America. The main aims are to identify any trends or shifts in the equilibrium position and to test for mean reversion. The key findings are the following: i) evidence of real depreciation at the end of the period, compared to the starting position; ii) significant differences in real exchange rates derived using symmetric and asymmetric definitions; iii) a moderate level of intracountry synchronicity, though results vary across periods and pairs of countries; iv) not rejection of the unit-root hypothesis for the series in levels; however, v) the series can be made stationary after allowing for trends structural breaks. For the adjusted series, the half-life of the process ranges from 0.8 to 2.5 years.