Political Booms, Currency Crises and Economic Growth

This paper finds evidence that political booms, defined as the rise in governments‘ popularity, are a good predictor of currency crises, suggesting that currency crises are often “political booms gone bust” events. The result is robust to controlling for other potential predictors of crises and contagion across countries, and not likely to be driven by banking crises preceding currency crises. It also shows that political booms are associated with lower GDP in the long-term upwards of 10 years, possibly through their effect on the occurrence of crises