Exchange rate management is a salient macroeconomic issue, especially in developing countries. In this paper, we study political economy factors that may affect the real exchange rate (RER) process and the real economic effects of the RER. We review recent literature on the effects of elections on the exchange rate, and adapt Ball's (1992) model to show that uncertainty about the future course of policy may make more appreciated RER's less predictable. We also review the literature on the real effect of RER appreciations and of RER uncertainty. We then construct a simultaneous GARCH-M model of the joint determination of the RER and output capable of testing our hypotheses simultaneously in a single model. We estimate the model using data first from Mexico, a developing country, and the US. In Mexico we find that elections significantly affect the evolution of the RER, that more appreciated RERs are less predictable, that RER depreciations lower output growth and that RER uncertainty lowers output growth, even when controlling for its wellstudied effect on trade. By contrast, none of these effects are found in the US data.

We adapt the model of McGuire & Olson (1996), creating a rotating bandit model to investigate the economic effects of a polity consisting of a regularly changing autocrat with an encompassing interest but a finite time horizon. We apply our model by studying the relationship between electoral cycles and economic growth and inflation uncertainty in Mexico, a country with a highly centralized and powerful government, no re-election, and until recently, little political competition. We find a significant post-election economic collapse but no pre-election boom, which is contrary to the predictions of the traditional PBC model. We also find evidence that elections create, rather than resolve, inflation uncertainty, which contradicts the predictions of the rational partisan model.

Visible expenditures which convey higher socioeconomic status may help individuals differentiate themselves in the marriage market when there is competition for partners and imperfect information. We examine a unique dataset of automobile purchasers in China to investigate the extent to which skewed sex ratios influence expenditure decisions for this highly visible commodity. Using a triple difference approach, we show that unmarried male consumers who face an unfavorable sex ratio purchase more expensive, luxury vehicles than their married peers. Lower income borrowers and those residing in regions with the worst sex ratios exhibit the largest relative degree of conspicuous consumption. In addition to the direct cost of consumption signaling, we demonstrate this behavior generates negative externalities in the form of lower average fuel economy and higher average vehicle weight. We view both the status competition and the externalities as unintended consequences of China's one child policy.