peg, and undervaluation with high spending.
It demonstrates that sectors that are
opposed to overvaluation will often support appreciation, while opponents of
undervaluation will rarely support undervaluation.
[Table 2 around here]
Import-competing industries prefer undervalued currencies, but are more
concerned with government spending (and tariffs) than currency valuation. This sector
will only support policy combinations involving undervaluation when they include high
spending. Import-competing sectors will support overvaluation when it involves high
spending, and the competing policy program packages undervalued currencies with low
spending. They do so because costs of overvaluation are smaller than the benefits of high
spending.
Manufacturing exporters too will often become supporters of overvaluation
despite their weak preference for depreciated currencies. This group benefits from
currency stability and high government spending, and they care more about these issues
than they do about currency valuation. Thus, they prefer overvaluation combined with
fixed exchange rates and high spending to any feasible undervaluation policy package.
The manufacturing sector will often support politicians offering overvaluation to enjoy its
concomitant features: currency stability, and high government spending. The benefits of
these policies exceed the losses that overvaluation brings.
Agricultural exporters strongly prefer currency depreciation, and are the only
group that never unambiguously prefers the overvaluation policy mix. However, when
high spending is not able to be coupled with undervaluation, farmers’ preferences cannot
52
Undervaluation with a floating regime and low spending is also possible but no sector prefers this to the
overvaluation option.
53
Manufacturers prefer overvaluation to undervaluation in column 2 even if their preference for high
spending is weak.
19
Convention