Policy Signaling and Foreign Electoral Uncertainty: Implications for Currency Markets

This paper examines the effects of foreign electoral shocks on currency markets. I develop a theory of signaling and uncertainty to explain why elections in countries with close economic ties should affect exchange rates. Methodologically, this paper focuses on several case studies, with the 2016 US election as a central case. I utilize an event analysis framework to measure the impact of the election on the Mexican peso by exploiting the plausible exogeneity of Donald Trump's tweets. I also measure changes in the peso using Trump's predicted chance of winning the election and show that the peso is weakest when Trump has the highest chance of winning the election. In addition, I include a series of robustness checks and analyses of other notable recent cases when electoral uncertainty affected currencies in other countries, including the 2018 Brazilian election. The results quantify the effect of foreign elections on exchange rates, building on the existing literature that focuses on how domestic elections shape currency markets. I conclude with a discussion of the external validity of the phenomenon demonstrated by the cases in the paper, charting future research on the topic and outlining ways to extend the findings.

Government-INE tensions look set to endure in Mexico

Significance Almost 98% of participants backed the proposal, but turnout, at just 7.1%, fell well short of the 40% threshold required to make the result binding. Government representatives have attempted to frame the vote as a success, while accusing the National Electoral Institute (INE) of failing to prepare properly for widespread participation. Impacts Without moves to strengthen Mexico’s institutional framework and improve enforcement, corruption and impunity will continue unabated. Allegations of INE bias will further polarise the political climate ahead of a presidential recall vote, scheduled for March. An unrelated conflict within the Electoral Court may worsen electoral uncertainty and the potential for election-related conflict.

Does Voluntary Voting Enhance Partisan Bias? Evidence from Chile

Although partisan bias – when an authority transfers discretionary public resources to a politically aligned receiver − has been extensively studied, less is known about how this practice is affected by the voting regime − compulsory or voluntary voting. In this article, I study partisan bias in Chile, using administrative data of transfers from the central authority to local governments, highlighting two relevant scope conditions: the electoral cycle, and electoral uncertainty caused by the adoption of voluntary voting. I found strong evidence of partisan bias, especially in election years and in electorally riskier municipalities. This suggests that the uncertainty introduced by this electoral reform induced politicians to allocate a large share of resources to risky municipalities, because such resources would play a more significant role in the electoral outcome. Overall, these results imply that voluntary voting has a large impact on the way that resources are allocated across subnational units.

Examining the Impact of Electoral Competition and Endogenous Lobby Formation on Equilibrium Policy Platforms

This paper formulates a mathematical model that combines the dynamics of interest group formation with electoral politics, involving office-seeking and corrupt political candidates and voting population with well-defined policy as well as ideological preferences. The analysis provides several interesting insights into the factors affecting lobby membership, free-riding incentives of citizen-voters and aggregate monetary donations garnered by lobby groups. Besides this, the paper also explores the impact of the formation of distinct lobby groups, the presence of swing voters and the corrupt practices or financial embezzlement on the equilibrium policy choice of electoral contenders. The findings reveal that more honest spending of campaign donations by electoral contenders reduces both the size of the lobby (or membership) as well as aggregate campaign contributions in equilibrium. In contrast, a rise in the fixed cost of organization is found to augment lobby membership along with the total amount of campaign contributions. In addition, a reduction in the level of electoral uncertainty as well as a rise in the ideological or swing voter density is found to increase the effectiveness of campaign contributions in raising an electoral candidate’s perceived popularity and, therefore, a smaller lobby group with lower aggregate donations is deemed as sufficient in influencing electoral outcomes. Moreover, the results indicate that a lower utility difference derived by the citizen-voters when comparing the two electoral candidate’s policy choices translates into smaller dispersion of the voters’ ideological bias, and consequently results in an increase in the size of lobby groups and their corresponding aggregate donations. As regards the choice of equilibrium policy, evidence of full policy convergence is not found in the case when citizen-voters of the two groups have separable preferences. In addition, policy equilibrium for a more realistic case in which the two policy platforms exhibit strategic interaction by reacting to each other has also been estimated with the help of simulations. Finally, this paper helps in categorically deciphering the influence of the median voter effect (or the centripetal force) and the distinct centrifugal forces in the form of lobbying effect, swing voter effect and the financial embezzlement effect on the equilibrium policy choice by employing different parametric specifications of the model.

New Guyana government will face immediate challenges

Significance His inauguration marks the end of a 19-month political saga that has distracted political attention from Guyana’s pressing economic, political and social challenges. The new president is unlikely to experience much of a honeymoon period, but will instead be expected to press ahead quickly with addressing these challenges. Impacts Aid and investment to Guyana are likely to resume following the hiatus during the period of electoral uncertainty. Ali will need to highlight new economic support measures to address the COVID-19 related downturn. In the longer term, transparent management of the new oil revenues will be a key challenge for the government.