Kevin Drum announces with much certainty that Donald Trump has nothing to do with the peso’s fall! Is he right?
No. He’s not.
It is true that the Mexican peso weakened in November 2014, when oil prices dropped from around $80 to $66 and analysts concluded that prices were heading further down. It is also true that the peso kept weakening for much of the remainder of 2015, for reasons which are unlikely to have anything to do with Donald Trump, even if the above graph might have you think otherwise.
But after that? Let’s start by eyeballing it. First you have the weakness in January and February, when Trump polls well and then, on February 1st, starts winning. After that the markets breathe a sigh of relief as Trump starts to attract opposition … until the day Trump cleans up in Pennsylvania (and DE, RI, CT, and MD) and makes it clear that neither Cruz nor Kasich can stop him. After that, some stability … until Election Day, 2016.
Sure, you can draw a nice line through the trend and say, “Nope, Trump had nothing to do with it.” But that makes the ups-and-downs look might coincidental.
But it gets worse for Drum’s argument. The peso moved on individual debate performances. It jumped right to the minute when the election result became clear. It tracked events with entirely understandable precision. And academics took notice: for fancy econometrics making the point, see here and here.
Finally, theory. For Drum to be right, he needs some sort of causal theory, something that would predict a long slow decline with the rest being random noise. (Highly coincidental noise, but still noise.) In other words, he needs a hypothesis. Oil prices won’t do it; they were priced in early. There might be another just-so story out there. I’d be curious to hear him propose it. But it seems silly to look for one, when there is an obvious explanation that fits the data staring us all in the face.