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Could Changes in Black Market Exchange Rates be Expansionary in LDCs?

Author

Listed:
  • Mohsen Bahmani-Oskooee

    (University of Wisconsin-Milwaukee)

  • Ilir Miteza

    (University of Michigan-Dearborn)

  • Gour Goswami

    (North South University-Bangladesh)

Abstract

Many of the previous studies that tried to assess the contractionay or expansionary effects of depreciations or devaluations in less developed countries (LDCs) used official exchange rate data and concluded that devaluations are contractionary in LDCs. However, due to capital controls, there is a black market for foreign exchange in many of the LDCs. In this paper when we use black market rates over the period 1975-1998 from 29 LDCs in a panel model, we find that devaluations are expansionary. Thus, for an effective exchange rate policy the official and black market exchange rates should be unified.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Ilir Miteza & Gour Goswami, 2008. "Could Changes in Black Market Exchange Rates be Expansionary in LDCs?," Economics Bulletin, AccessEcon, vol. 6(13), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-07f30023
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    References listed on IDEAS

    as
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    7. Bahmani-Oskooee, Mohsen & Miteza, Ilir & Nasir, A. B. M., 2002. "The long-run relation between black market and official exchange rates: evidence from panel cointegration," Economics Letters, Elsevier, vol. 76(3), pages 397-404, August.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F3 - International Economics - - International Finance

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