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Article

Is good news for Donald Trump bad news for the Peso?

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ABSTRACT

We study the relationship between Mr. Trump’s election prospects and the US dollar-peso exchange rate, controlling for other factors that determine overall exchange rates. Increases in Mr. Trump’s probability of winning generate short-run, but statistically significant economically meaningful, disturbances in the US dollar-peso exchange rate. We also provide evidence on Mr. Trump’s effects on Mexican equity markets, premia for Mexican sovereign default risks, exchange rate volatility.

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Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Wolfers and Zitzewitz (Citation2006) provide a microeconomic model which allows one to interpret prices as probabilities.

2 It can be shown that the impulse-response function to the Trump contract price shock is identical to the generalized impulse-response function proposed by Pesaran and Shin (Citation1998). For detailed explanations, see Kim (Citation2013).

3 We employed two lags (p = 2) by the AIC and the BIC with a maximum 6 lags.

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