David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.003.0006
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter investigates the impact of interests and institutions on exchange rate policy with case studies of South Korea, Mexico, and Iran. It shows that Korean policymakers in the 1960s and 1970s ...
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This chapter investigates the impact of interests and institutions on exchange rate policy with case studies of South Korea, Mexico, and Iran. It shows that Korean policymakers in the 1960s and 1970s used their control over labor and financial markets to increase industrialists' support for an undervalued exchange rate. Korea's powerful industrialists also provided crucial political backing for President Park's decision to maintain an undervalued exchange rate. Mexican exchange rate politics bears many similarities to Argentine exchange rate politics: Mexican industrialists frequently opposed undervalued exchange rates, and their preferences encouraged Mexican policymakers to overvalue the peso. Iran's weak manufacturing sector typically favored an undervalued exchange rate. Although they received their preferred exchange rate policy in the 1960s and 1970s, Iranian manufacturers had insufficient clout to prevent an overvalued exchange rate in the 1950s, 1980s, or 1990s.Less
This chapter investigates the impact of interests and institutions on exchange rate policy with case studies of South Korea, Mexico, and Iran. It shows that Korean policymakers in the 1960s and 1970s used their control over labor and financial markets to increase industrialists' support for an undervalued exchange rate. Korea's powerful industrialists also provided crucial political backing for President Park's decision to maintain an undervalued exchange rate. Mexican exchange rate politics bears many similarities to Argentine exchange rate politics: Mexican industrialists frequently opposed undervalued exchange rates, and their preferences encouraged Mexican policymakers to overvalue the peso. Iran's weak manufacturing sector typically favored an undervalued exchange rate. Although they received their preferred exchange rate policy in the 1960s and 1970s, Iranian manufacturers had insufficient clout to prevent an overvalued exchange rate in the 1950s, 1980s, or 1990s.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0008
- Subject:
- Economics and Finance, Financial Economics
The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational ...
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The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational theory is provided to answer the following questions for the Asian countries: Was a currency crisis produced by an overvalued real exchange rate? Was a debt crisis produced by an “excessive/unsustainable” external debt? What was the interaction between the two? The models imply a set of objective, theoretically-based warning signals and empirical analysis allows the assessment of which countries were or were not highly vulnerable to shocks.Less
The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational theory is provided to answer the following questions for the Asian countries: Was a currency crisis produced by an overvalued real exchange rate? Was a debt crisis produced by an “excessive/unsustainable” external debt? What was the interaction between the two? The models imply a set of objective, theoretically-based warning signals and empirical analysis allows the assessment of which countries were or were not highly vulnerable to shocks.
David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.003.0005
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter evaluates whether exchange rate overvaluation in Argentina follows the logic of the conditional preference theory. The first part documents the Argentine state's inability to control its ...
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This chapter evaluates whether exchange rate overvaluation in Argentina follows the logic of the conditional preference theory. The first part documents the Argentine state's inability to control its labor and financial systems, and explains why the manufacturing sector should have high levels of influence over the country's exchange rate policies. The second half of the chapter examines the political dynamics of exchange policymaking in Argentina between 1966 and 2012. It is shown that Argentina's manufacturing sector has usually preferred an overvalued exchange rate to an undervalued one. There was one important exception to this general trend: between 2001 and 2005, when the country's economy was suffering from high degrees of excess capacity and business costs became disconnected from undervaluation as a result.Less
This chapter evaluates whether exchange rate overvaluation in Argentina follows the logic of the conditional preference theory. The first part documents the Argentine state's inability to control its labor and financial systems, and explains why the manufacturing sector should have high levels of influence over the country's exchange rate policies. The second half of the chapter examines the political dynamics of exchange policymaking in Argentina between 1966 and 2012. It is shown that Argentina's manufacturing sector has usually preferred an overvalued exchange rate to an undervalued one. There was one important exception to this general trend: between 2001 and 2005, when the country's economy was suffering from high degrees of excess capacity and business costs became disconnected from undervaluation as a result.
David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.003.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This introductory chapter sets out the book's purpose, which is to explain why a relatively small number of developing countries keep their exchange rates undervalued while many more overvalue their ...
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This introductory chapter sets out the book's purpose, which is to explain why a relatively small number of developing countries keep their exchange rates undervalued while many more overvalue their exchange rates. Using both quantitative data on over one hundred countries and detailed case studies of five developing countries, this book provides strong evidence in support of a domestic political explanation of undervalued exchange rates. The chapter then discusses the conditional preference theory, which argues that undervalued exchange rates are most likely when the manufacturing sector is powerful and the state controls labor and financial markets. It also considers the implications of the theory for our understanding of the global political economy. This is followed by an overview of the subsequent chapters.Less
This introductory chapter sets out the book's purpose, which is to explain why a relatively small number of developing countries keep their exchange rates undervalued while many more overvalue their exchange rates. Using both quantitative data on over one hundred countries and detailed case studies of five developing countries, this book provides strong evidence in support of a domestic political explanation of undervalued exchange rates. The chapter then discusses the conditional preference theory, which argues that undervalued exchange rates are most likely when the manufacturing sector is powerful and the state controls labor and financial markets. It also considers the implications of the theory for our understanding of the global political economy. This is followed by an overview of the subsequent chapters.
David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- chapter
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.003.0003
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter uses two different cross-national quantitative datasets to address the following question: Why do some developing countries undervalue their exchange rates while others maintain ...
More
This chapter uses two different cross-national quantitative datasets to address the following question: Why do some developing countries undervalue their exchange rates while others maintain overvalued exchange rates? First, it examines which countries are most likely to maintain undervalued exchange rates, using data on as many as one hundred twenty developing countries from 1975 to 2006. The data indicate that exchange rates are most undervalued when countries combine powerful industrial sectors with state control over labor and financial markets. Second, it analyzes survey data on about two thousand manufacturing firms from over fifty countries in the year 1999 to understand whether and when industrialists favor undervalued exchange rates. These analyses show that manufacturing firms are more supportive of undervalued exchange rates in countries with state-controlled labor and financial systems than they are in other conditions.Less
This chapter uses two different cross-national quantitative datasets to address the following question: Why do some developing countries undervalue their exchange rates while others maintain overvalued exchange rates? First, it examines which countries are most likely to maintain undervalued exchange rates, using data on as many as one hundred twenty developing countries from 1975 to 2006. The data indicate that exchange rates are most undervalued when countries combine powerful industrial sectors with state control over labor and financial markets. Second, it analyzes survey data on about two thousand manufacturing firms from over fifty countries in the year 1999 to understand whether and when industrialists favor undervalued exchange rates. These analyses show that manufacturing firms are more supportive of undervalued exchange rates in countries with state-controlled labor and financial systems than they are in other conditions.
David A. Steinberg
- Published in print:
- 2015
- Published Online:
- August 2016
- ISBN:
- 9780801453847
- eISBN:
- 9780801454257
- Item type:
- book
- Publisher:
- Cornell University Press
- DOI:
- 10.7591/cornell/9780801453847.001.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and ...
More
Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and “undervalued” exchange rates, a policy that promotes export-led development but often heightens tensions with foreign governments. Many other developing countries “overvalue” their exchange rates, which increases consumers' purchasing power but often reduces economic growth. This book argues that the demands of powerful interest groups often dictate government decisions about the level of the exchange rate. Combining case studies of China, Argentina, South Korea, Mexico, and Iran with cross-national statistical analyses, the book reveals that exchange rate policy is heavily influenced by a country's domestic political arrangements. Interest group demands influence exchange rate policy, and national institutional structures shape whether interest groups lobby for an undervalued or an overvalued rate. A country's domestic political system helps determine whether it undervalues its exchange rate and experiences explosive economic growth or if it overvalues its exchange rate and sees its economy stagnate as a result.Less
Exchange rate policy has profound consequences for economic development, financial crises, and international political conflict. Some governments in the developing world maintain excessively weak and “undervalued” exchange rates, a policy that promotes export-led development but often heightens tensions with foreign governments. Many other developing countries “overvalue” their exchange rates, which increases consumers' purchasing power but often reduces economic growth. This book argues that the demands of powerful interest groups often dictate government decisions about the level of the exchange rate. Combining case studies of China, Argentina, South Korea, Mexico, and Iran with cross-national statistical analyses, the book reveals that exchange rate policy is heavily influenced by a country's domestic political arrangements. Interest group demands influence exchange rate policy, and national institutional structures shape whether interest groups lobby for an undervalued or an overvalued rate. A country's domestic political system helps determine whether it undervalues its exchange rate and experiences explosive economic growth or if it overvalues its exchange rate and sees its economy stagnate as a result.