Book Description
I analyze how representative institutions affect policymaker preferences over the level of the domestic exchange rate. In the first chapter, I use cross-country survey data to test whether firm managers have strong concerns about the volatility and value of the exchange rate. I find that exchange rate volatility is a far more consistent concern for managers than the value of the domestic currency. In the second chapter, I develop a theory which argues that policymakers in autocratic settings are more likely than those in democracies to maintain misaligned exchange rates and that the direction of preferred misalignment will depend on the political power of the tradables sector. The cross-county regression analysis supports the claims that democracies are more likely to have equilibrium exchange rates and that autocracies with small tradables sectors are more likely to have overvalued currencies. In the final substantive chapter, I provide strong evidence that East Asian governments have manipulated the weights of currencies in their exchange rate basket policies in pursuit of maintaining the competitiveness of their currencies.
