Mass Political Reactions to Currency Crises: Evidence from Turkey

• In Event: Contemporary Developments in Monetary Politics

Abstract

This paper examines how currency crises shape mass political attitudes and policy preferences. I argue that large drops in a currency’s value hurt many citizens’ pocketbooks. In addition, the two main policy instruments available to governments for preventing a depreciation—raising interest rates and imposing capital controls—are also detrimental to many voters’ interests. Currency crises therefore reduce the popularity of governments. Previous studies have examined the political-economy of currency crises using cross-national data, but we know little about the micro-level underpinnings of these macro relationships. This paper fills in this gap using original survey data that was fielded in Turkey in 2018 in the middle of that country’s currency crisis. I present two main sets of findings. First, I show that individuals’ personal economic interests influence their attitudes about currency depreciation and their preferences for interest rate and capital account policy. Second, exploiting exogenous temporal variation in the currency’s value during the survey window, I show that currency depreciations reduce support for the government. These findings suggest that voters understand and care deeply about how financial crises affect their pocketbooks, and they punish governments accordingly.

Author

• David A. Steinberg, Johns Hopkins University