^*Ari Aisen is an economist in the IMF's Asia-Pacific Department. The author benefited from comments by Carlos Végh, Jean-Laurent Rosenthal, Luisa Lambertini, Aaron Tornell, Marina Bassi, Marcos Rangel, Oscar Mitnik, Gilbert Terrier, Robert Flood, and an anonymous referee, as well as seminar participants at the University of California–Los Angeles and the 2002 Latin American and Caribbean Economic Association. Gloria Bustillo provided excellent editorial assistance.

Abstract

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Because exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations generate a consumption bust followed by a recovery, policymakers may take into account the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections, whereas MBS are set after them.