Presidential Approval in Peru: An Empirical Analysis Using a Fractionally Cointegrated VAR
Abstract
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 ináation volatility. Additionally, a Principal Components Analysis (PCA) conducted over a large set of macroeconomic
indicators points to a greater ináuence 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 Öndings identify a signiÖcant source
of political instability and a considerable challenge to democratic governance. To the authorsíbest
knowledge, this is the Örst application of fractional cointegration analysis to political economy in
Latin America
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