Journal of Financial Economics Vol. 143 No. 1 2022
Government policy approval and exchange rates
Abstract
Measures of US government policy approval are strongly related to persistent fluctuations in the dollar value. Contemporaneous correlations between approval ratings and the dollar approach 50% against advanced economy currencies. High approval ratings further forecast a decline in the dollar risk premium several years ahead and are associated with a persistent increase in economic growth and a reduction in economic volatility. We provide an illustrative model to interpret our empirical evidence. In the model, policy valuations (approvals) are forward-looking and increase at times of high expected policy-related growth and low policy-related uncertainty, which are times of a strong dollar and low dollar risk premium.
- DOI
- 10.1016/j.jfineco.2021.06.031
- Volume
- 143
- Issue
- 1
- Pages
- 303-331
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib