Handbook of Safeguarding Global Financial Stability

Chapter 3

The Political Economy of Exchange-Rate Policy

D. Steinberg* and S. Walter^†

^*University of Oregon, Eugene, OR, USA

^†University of Heidelberg, Heidelberg, Germany

Outline

Introduction

Economic Explanations of Exchange-Rate Policy: Important but Insufficient

Preferences: The Demand for Exchange-Rate Policy

Sectors

Policymakers’ Beliefs and Ideas

Extensions to the Sectoral Model

Level of Standardization

Reliance on Imported Inputs

Structure of Firms’ Balance Sheets

Partisan Preferences on Exchange-Rate Policymaking

Voters

Institutions and Exchange-Rate Policy

Democracy

Elections

Electoral System

Number of Veto Players

Central Bank Independence

Conclusion

Glossary

Further Reading

Introduction

A country’s exchange rate conveys the price ...