Presidential cycles in the USA and the dollar-pound exchange rate : evidence from over two centuries

Abstract

In this paper, we analyze the impact of the U.S. presidential cycles on the dollar relative to the British pound over the longest possible monthly period of 1791:01 to 2018:10, based on GJR (or threshold generalized autoregressive conditional heteroscedasticity (GARCH)) model. The usage of over two centuries of data controls for sample selection bias, while a GJR model accommodates for omitted variable bias. We find that over the entire sample period, the Democratic regime has indeed depreciated the dollar relative to the pound. However, during the post Bretton Woods era, the depreciation of the dollar is not statistically significant under the Democratic presidents.