Foreign Electoral Uncertainty and Currency Market Spillovers Alexander “Xander” Slaski* Tulane University November 15, 2019 Abstract This paper examines the eects of foreign elections on domestic currency politics. I develop a theory of signaling and uncertainty to explain why elections in countries with close economic ties should aect exchange rates. Methodologically, this paper utilizes an event analysis framework to measure the impact of the 2016 US election on the Mexican peso by exploiting the plausible exogeneity of Donald Trump’s tweets. I also measure changes in the peso using Trump’s predicted chance of winning the election and show that the peso is weakest when Trump has the highest chance of winning the election. The results indicate that each tweet causes a substantial decline in the value of the peso relative to the dollar during Trump’s campaign; the election itself has an even larger impact on the peso. I include a series of robustness checks and analyses of other notable recent cases of how electoral uncertainty aected currency values in other countries, including the 2018 Brazilian election. I conclude by outlining potential future research and possible extensions of the findings. The results quantify the eect of foreign elections on exchange rates, building on the existing literature that focuses on how domestic elections shape currency markets. Keywords: currency, international monetary politics, election, Mexico, campaign, foreign exchange Word count (excluding appendix): 11,513. *Tulane University Post-Doctoral Fellow, 7025 Freret Street, New Orleans, LA 70118,
[email protected], ORCID: 0000-0001- 9335-055X. I thank Allyson Benton, Faisal Ahmed, Eric Arias, Deborah Yashar, Helen Milner, Nicole Weygandt, Thomas Oatley and Raphael Cunha as well as members of the 2018 REPAL conference and members of the Brigham Young University political science seminar for their comments and suggestions.