The first chapters introduce basic policy choices for managing the monetary system: exchange rate regimes, either fixed, floating or pegged to another currency, and a currency’s price level. The choice of regime depends on competing demands for stability and flexibility, while the price level is held in tension between supporting price competitiveness for exporters and the purchasing power of consumers. In Currency Politics, Frieden not only draws together beautifully the strands of his previous work, but he advances a new and entirely persuasive explanation of the euro project as an essential bulwark against competitive devaluations. Above all, he argues convincingly for the centrality of exchange rate policy to domestic politics, international relations, and macroeconomics in open economies."—Ronald Rogowski, University of California, Los Angeles

Currency Politics is an ambitious book on an important topic. Frieden is one of the best political economists and one of the best scholars writing on this subject." —Sebastian Edwards, University of California, Los Angeles and author of Toxic Aid This figure shows the effect of the 2016 election on the Mexico peso. The event analysis around the 2016 election shows a strong effect, with the peso weakening more than 5 percent. However, the effect seems to become smaller as the size of the window increases, perhaps as investors correct overreaction to the initial news. Note that the figure presents net change in the peso/dollar exchange rate. As the peso exchange rate increased from under 19 pesos/USD to more than 20 pesos/USD, this is equivalent to a more than 5 percent change. The results of tweets are positive but small and not statistically distinguishable from zero before Trump was named as the Republican candidate. This would align with expectations, as Trump was considered a “long-shot” candidate at the time and thus the risk of him becoming president was perceived as low. During the campaign, when Trump was the presumptive Republican nominee, the effect of a tweet is approximately an increase of 0.05 pesos to the dollar (an approximately 0.25 percent change in percent terms). The effects also appear to persist in the window after the tweet. Again, this would align with expectations, as securing the nomination increased the probability of Trump being elected as president and thus should impact the effect of his tweets. Further, the tweets appear to have an effect regardless of whether they contain new or repeated policy information, providing support for both H1 and H2. A pathbreaking new intellectual history of monetary policy. In examining how key thinkers approached the economic crises of their respective times, Eich offers a map for navigating the politics of money today."—Daniel Steinmetz-Jenkins, The Nation

My theory relies on insights from financial economists and the financial markets literature, notably the semi-strong version of the efficient markets hypothesis (EMH). The EMH states that financial markets incorporate all known information about an asset (in this case, currencies) and create a present value based on future expectations of the asset value ( Fama 1970). Thus, a decline in the value of a currency reflects shifting expectations about its value, driven by new information that causes those active in currency markets to expect the future value to be lower. However, markets incorporate information from a variety of global sources, including via foreign elections; there is no reason to think that only domestic drivers should affect currency values. Summarizing the information above, I run four different event analyses on four different time periods (the corresponding number of tweets is listed in parentheses): Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics.

In the use of case studies and the inclusion of historical and contextual factors, Currency Politics introduces a meaningful narrative to the analysis. Pure economic analysis is typically deterministic and struggles to account for contingent factors. By considering social, institutional and historical aspects, the text succeeds in treating the economy for what it really is: a complex and interdependent phenomenon. The moment when you start to wonder what money is feels like pitching through a trapdoor into the void. This book is a marvelous aid to stabilizing that awful sense of cognitive vertigo. By examining several periods in the history of money, and showing how it has been used in each period to constitute power and the state, Eich brings us to the present with a much clearer sense of where we are, how we got here, and how we might seize money itself and use it as a creative political force for good.”—Kim Stanley Robinson, author of Ministry for the Future In addition, the timing of the election and the probability of Trump being elected affected how markets interpret tweets. Currency traders not only weighed the severity of Trump's proposed policies, but also his electoral prospects, which formed a proxy for the probability that Trump's policies would be implemented. In some parts of the election cycle, Hillary Clinton was assumed to have essentially won the election, and in other times Trump had a reasonable chance of capturing the presidency. His invective became a more serious threat to the Mexican economy when there was an increased risk of him using the power of the presidency to implement an anti-Mexico agenda. If Trump had a small chance of winning the presidency, then the tweet should have a smaller impact. If Trump had a larger chance of winning—or indeed, once he secured the presidency—the tweet can be treated as likely to be put forth as policy. In summary, the peso will be weakest when Trump has a higher probability of winning, strongest when he has a lower chance of winning, given that there is a greater expected chance that he will implement his policies. In addition to the event analysis, I simply regress the probability of Trump winning on the Mexican peso. I use Nate Silver's 538 blog (the aggregate “chance of winning” polls-plus measure) for Trump's electoral probability. 16 Nate Silver's probability calculations are a widely used and respected aggregator of available public opinion polls. I also use the Iowa Betting Markets, given that it involves more than simply cheap talk, as bettors have a financial stake in the outcome and thus an incentive to gather accurate information about the electoral probabilities. 17Currency Politics is an ambitious book on an important topic. Frieden is one of the best political economists and one of the best scholars writing on this subject."—Sebastian Edwards, University of California, Los Angeles and author of Toxic Aid