Economic insecurity and voter attitudes about currency crises

Abstract

Currency crises are the most common type of financial crisis in recent decades, but little is known about how the public views these events. This paper argues that voters' perceptions of their economic self-interests in general, and their employment prospects in particular, influence their attitudes about currency crises and preferred policy responses. We hypothesize that individuals with high degrees of job insecurity will be more concerned about currency depreciation, more opposed to orthodox policy responses such as raising the interest rate, and more supportive of unorthodox policy responses, such as intensifying capital controls. Data from nationally representative surveys in two countries experiencing currency crises recently-Argentina and Turkey-support our argument. A follow-up survey experiment in Turkey, which randomly primed some respondents about deteriorating labor market conditions, provides further evidence. Overall, the results show that concerns about the labor market have a strong and systematic influence on how voters respond to currency crises.