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budget constraint capture the gain chance of reelection choice of exchange choose a fixed choose a flexible choose a pegged chooses a floating commitment mechanism conservative Government conservative successor cost is spread create a commitment create constraints different regimes exchange rate regime expected utilities facing electoral uncertainty fixed exchange rate fixed regime flexible exchange rate flexible regime floating exchange rate floating regime future government future policy implementation Government 1 chooses government spending increasing its chance incumbent will choose induce its conservative inflation cost inflation tax INTERNATIONAL MONETARY FUND Left party liberal Government liberal incumbent lose the election median voter median voter's preference monetary policy nominal money optimal spending level paper party to spend party will choose pegged exchange rate pegged regime private agent public spending rate regimes lies regime choice Right party scenario second period side of Eq.(18 spending g successor to spend three incentives win the election