Edited by Thomas Oatley and W. Kindred Winecoff
Chapter 10: Domestic institutions and exchange rates
This chapter discusses research showing how domestic political institutions may help to explain exchange rates in terms of both the currency commitments that governments make and their exchange rate outcomes, which may (or may not) be consistent with these pre-existing commitments. To accomplish this task, the chapter is divided into three major sections each with multiple subsections. The first section establishes and evaluates certain core theoretical assumptions underlying the research program on domestic political institutions and exchange rates. The second section reviews the existing literature, organized in three waves. The third section then considers where these waves of research have found consensus and also identifies where additional research is needed to further our understanding of how domestic political institutions affect both exchange rate commitments and market outcomes. The chapter then concludes with a brief discussion of how the recent financial crisis might reshape this research program.
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