Under asymmetric information, dishonest sellers lead to market unraveling in the lemons model. An additional cost of dishonesty is that language becomes cheap talk. We develop instead a model where people derive utility from actions (what they say), as well as from outcomes, so talk is costly....

Previous empirical work on political budget cycles (PBCs) implicitly assumes the executive has full discretion over fiscal policy. Instead, we ask what happens when legislative checks and balances limit executive discretion. We find that legislative checks and balances moderate PBCs in countries...

This paper develops a semiotic-inferential model of verbal communication for incomplete information games: a language is seen as a set of conventional signs that point to types, and the credibility of a message depends on the strategic context. Formally, there is an encoding-decoding step where...

Primero usamos casos empíricos concretos para motivar la discusión de los ciclos electorales en política fiscal. Luego presentamos una revisión teórica y econométrica de la literatura. Teóricamente, los ciclos se pueden interpretar en términos de un problema de inconsistencia temporal...

The links between subnational political budget cycles (PBCs) and the national government in federal countries have seldom been studied. We study the behavior of the budget balance, public expenditures, and revenues in Argentine provinces during the 1985–2001 period. We find that in election...

In Latin America there is ample evidence of exchange rate depreciations after elections. Hence, we turn to the behavior of international reserves over the 1980–2005 period to investigate if exchange rates are temporarily stabilized before elections. Using annual, quarterly, and monthly data to...

The permanent income/transitory income distinction from consumption functions can be applied to cost functions. Transitory deviations of actual output from potential output, i.e. variations in capacity utilization, are relevant for the pattern of U-shaped average costs found in econometric...

Previous results on political cycles as a signal of competency assumed that opportunism was common knowledge. If opportunism is not common knowledge, there may be a partially pooling equilibrium where cycles indicate opportunism rather than competency. Insofar as more discretionality increases...

This paper focuses on a monetary explanation of real exchange rate fluctuations, namely capital flight provoked by the process of currency substitution. Under fixed exchange rates, capital inflows to reconstitute domestic money holdings produce a positive liquidity effect due to the creation of...