英语论文网

, in fact economists may opt to take long-term view and emphasize the positive side of devaluation, but politicians are often myopic and will be affected by interest groups to take a short-term view (Drazen 1996; Alesina & Drazen 1991). As such, governments will choose policies that provide short-term benefits, and if costs have to be incurred, then they will go for long term ones. Devaluation, in this context, is one of the least desirable policies and governments will be unwilling to value until there isn’t any alternative left.

 

Unfortunately, tightening of macroeconomic policy is the main alternative and it has costs attached to it basically higher interest rates, slower growth, and rising unemployment. According to Rebelo and Vegh, governments will continue to finance deficits with international reserves or borrowing for as long as those are available. Indeed, governments in most cases surrender to devaluations because they run out of reserves or they cannot borrow anymore (Rebelo & Vegh, 2008).

 

Finally, this myopia syndrome will be more present in the time of elections. Due to adverse costs coming immediately from devaluations, governments will lose its power and can easily be thrown out of the office, thus making more possible for it to be delayed. Furthermore, the benefits might fall to the newly installed opposition government in the long term, making devaluation even less plausible to take place ahead of election due to implication of political damage.

 

Perceptions and Uncertainty

 

A key role in examining the delays in devaluations by governments can arise as a result of the fact that economics gives more importance to expectation, whereas, politics leans more towards perceptions. In this context, politicians are more worried about what people think will happen rather than what economic models predict, and thus frame their responses accordingly.

 

Governments are placed in a situation to think that the gainers will undervalue their gains, and losers will over estimate the losses from a policy, thus providing grounds to differ between perception and reality. Moreover, the reaction from those actors can be of such that losers will react more aggressively, compared to gainers’ positive response.

 

Devaluation in general is perceived as a sign of economic incompetence and failure. International capital markets will have a tendency to assume that devaluation will signal less discipline from the government that first created the problem; uncertainty will arise making future developments foggy.

 

In the end, there is also some perception that in the future, the magic will occur and there will not be any future costs from delaying devaluation due to a booming in the economy. So, we are sure about the costs of adjustment that w本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。