No.480 - Presidential Approval in Peru: An Empirical Analysis Using a Fractionally Cointegrated VAR No.480 - Presidential Approval in Peru: An Empirical Analysis Using a Fractionally Cointegrated VAR

Presidential approval in Peru depends on economic outcomes. However, voters are unable to distinguish between outcomes resulting from economic policies and those caused by exogenous shocks. Estimation results from seven Fractional Cointegrated VAR (FCVAR) models suggest that presidential approval increases with the monetary policy interest rate, the terms of trade, and manufacturing employment; and decreases with the nominal PEN/USD exchange rate and infl‡ation volatility. Additionally, a Principal Components Analysis (PCA) conducted over a large set of macroeconomic indicators points to a greater in‡fluence of external over domestic factors in explaining presidential approval; i.e., economic outcomes that determine the dynamics of presidential approval are not under presidential control in Peru. It can be argued that these …findings identify a signifi…cant source of political instability and a considerable challenge to democratic governance. To the authors’ ’best knowledge, this is the …first application of fractional cointegration analysis to political economy in Latin America.
JEL Codes: C32, D72.
Keywords: Economic Voting, Fractional Cointegration, Political Economy, Macroeconomics, Latin America, Peru.