The Effects of Political Crises Events on the Venezuelan Bolívar

During the late 1980s the once vibrant Venezuelan economy experienced a sudden and remarkable downturn, exacerbating political tensions that had long lain dormant. The purpose of my analysis of the Venezuelan economy from 1985-2003 is to capture a small element of the relationship between those economic and political trends which dominated the period. In particular, I examined whether or not political events such as coups, mass protests, strikes, and elections affect Venezuela’s nominal and real bilateral exchange rates with the United States and Venezuela’s real effective exchange rate. I identified and collected historical data on the date, intensity, notoriety, and duration of major political events during the crisis years of the late 1980s and 1990s up until the early years of the Chávez administrations. To test for the effects of discrete political events, I estimated time series models using dummy variables for different types of political events. My results showed that political events from the period 1985-2003 had a significant effect on the value of Venezuela’s foreign exchange rates, and a major political event was usually associated with a depreciation of the Bolívar. Such results indicate that political events are often large determinants of exchange values, with important implications for Venezuela’s trade competitiveness.

Recommended citation: Schwindt, Daniel. (2014). "The Effects of Political Crises Events on the Venezuelan Bolívar." Issues in Political Economy. 23(1).