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Elections and sovereign debt in advanced economies

McMenamin, Iain orcid logoORCID: 0000-0002-1704-390X, Breen, Michael orcid logoORCID: 0000-0002-5857-9938 and Portillo, Juan Munoz (2013) Elections and sovereign debt in advanced economies. Working Papers in International Studies. (Paper No. 3013/1). Dublin City University.

Abstract
This article argues that advanced economies never eradicated political risk. We demonstrate that elections had large impacts on the long-term interest rates of nineteen countries in 130 elections over thirty years. Using an event-study methodology, we calculate that the resolution of uncertainty on the announcement of election results reduces interest rates. Very little of the variation is explained by economic variables. By contrast, familiar variables from comparative politics provide powerful explanations of variation in the impact of elections on borrowing rates. The biggest is ideology: the larger the swing towards the right in the parliament the larger the reduction in the interest rate. Two other variables also matter through their role in uncertainty. Close elections increase uncertainty during the campaign, leading to a greater reduction in uncertainty when the result is announced and a drop in the interest rate. By contrast, consensual institutions reduce uncertainty during campaigns and therefore do not reduce the interest rate. Political economists should not ask whether there is political risk or not. Rather they need to calculate how much risk there is and explain variation.
Metadata
Item Type:Working Paper (No. 3013/1)
Refereed:Yes
Uncontrolled Keywords:Elections; Economics; Political economics; Interest rates
Subjects:Social Sciences > Political science
DCU Faculties and Centres:Research Initiatives and Centres > Centre for International Studies (CIS) > Working Papers in International Studies Series
Publisher:Dublin City University
Copyright Information:© 2013 The authors
Use License:This item is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 3.0 License. View License
ID Code:18358
Deposited On:10 Jun 2013 13:29 by Shane Martin . Last Modified 26 Sep 2018 10:58
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