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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.
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.