Who Gets to Keep his Money? Private Sector Lobbying during Currency Crises.

Currency crises ? and the policies chosen to overcome these crises - have an enormous impact on the private sector. It is therefore surprising that research on currency crises so far has mostly neglected the influence of private sector lobbying on government?s reactions to such crises. In order to address this gap, this paper proceeds in two steps. First, it outlines the preference structure of the private sector and shows that these preferences run along two-dimensions: On the export-import dimension, export-oriented firms tend to prefer devaluations, while firms using a large amount of imported goods tend to prefer exchange rate defenses. On the debt-dimension, firms holding large amounts of foreign-currency denominated debt prefer exchange rate defenses while those with liabilities in domestic currency are in favor of devaluations. In a second step, the paper shows how different institutional settings, such as corporatism and central bank independence, give these groups different weight in the policymaking process. The hypotheses derived from this discussion are then tested for a sample of 86 developing and developed countries for the time period 1970-2003. The results show that groups with greater access to the policy arena have a greater probability of receiving their preferred policy response. In addition, central bank independence increases the probability of a defense, while strong labor unions increase the probability of a devaluation. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]