Onour, Ibrahim and Cameron, Norman (1997): Parallel Market Premia and Misalignment of Official Exchange Rates. Published in: Journal of Economic Development , Vol. 22, No. 1
Download (280Kb) | Preview
Due to restrictive foreign exchange policy and active parallel markets for foreign exchange in some developing countries, it is often believed that the real official exchange rate is undervalued (overvaluing in domestic currency). Since an overvalued domestic currency depresses official current account below its equilibrium level, while an undervalued domestic currency may be inflationary, it is important to be able to detect real official rate misalignment as early as possible.This is difficult in economies where parallel markets for foreign currencies are well established, and where it is therefore to observe underlying capital flows.We show that the direction of real official rate misalignment is identfiable without knowing the size of capital flow in the parallel market. We indicate that a change in the parallel market premium is an appropriate indicator of change in real official rate misalignment.
|Item Type:||MPRA Paper|
|Original Title:||Parallel Market Premia and Misalignment of Official Exchange Rates|
|English Title:||Parallel Market Premia and Misalignment of Official Exchange Rates|
|Keywords:||Foreign exchange markets;Official rate; parallell rate|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
A - General Economics and Teaching > A1 - General Economics > A10 - General
|Depositing User:||A Onour|
|Date Deposited:||04. Jun 2009 06:18|
|Last Modified:||13. Feb 2013 19:30|
Dornbusch, R., Pechman, D., Rocha, R., and Simoes,D., “The Black Market for Dollars in Brazil,” Quarterly Journal of Economics, 98, Feb. 1983, 25-40.
Edwards, S., Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries (Cambridge, Mass., MIT Press, 1989).
Gros D., “Dual Exchange Rate in the Presence of Incomplete Market Separation: Long-Ran Effectiveness and Implications for Monetary Policy” IMF, WP/87/45,1987
Jadgeep B., Vegh C., “Dual Exchange Markets Under Incomplet Separation: An Optimizing Model,” IMF Staff Papers, Vol. 37, No.1 March 1990.
Kharas, H., and Pinto, B., “Exchange Rate Rules, Black Market Premia, and Fiscal Deficits: The Bolivian Hyperinflation,” Review of Economic Studies, 56, July 1989, 435-47.
Kiguel, M., O’Connell, S., “Parallel Exchange Rate in Developing Countries.” The World Bank Research Observer, Vol. 10, No.1, Feb. 1995, 21-52.
Lizondo, J. S., “Unification of Dual Exchange Market,” Journal of International Economics, 22, Feb. 1987, 57-77.
Onour, I., “Unification of Dual Foreign Exchange Markets” Economics of Planning (Journal),33, 171-184, 2000.
Rodriguez, C., “A Stylized Model of the Devaluation-Inflation Spiral” IMF Staff Papers, 25 , 1978, 76-89.
Pinto B., “Black Market Premia, Exchange Rate Unification and Inflation In Sub-Saharan Africal” World Bank Economic Review, 3, Sep. 1989, 321-38.
Kant, C., (2002) “What is Capital Flight?, The World Economy, Vol.22, Issue 2, pp.341-358.