IMF Working Papers

Political Instability and Economic Vulnerability

Author/Editor:

Christian B. Mulder ; Matthieu Bussière

Publication Date:

April 1, 1999

Electronic Access:

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Summary:

This paper analyzes and tests the influence of political instability on economic vulnerability in the context of the 1994 and 1997 crises episodes. It constructs four political variables that aim at quantifying political instability. The paper finds that for countries with weak economic fundamentals and low reserves, political instability has a strong impact on economic vulnerability. The estimation results suggest that including political variables in economic models does improve their power to explain and predict economic crises. The paper concludes that countries are more economically vulnerable during and especially following election periods, and when election results are less stable than at other times.

Series:

Working Paper No. 1999/046

Subject:

Environment Exchange rate arrangements Exchange rates Financial crises Foreign exchange Non-renewable resources Real exchange rates