The black market exchange rate vs. the official rate in testing PPP: Which rate fosters the adjustment process?
AbstractIn testing the purchasing power parity theory (PPP) researchers hardly pay attention to the speed with which the exchange rate adjusts to a change in relative prices. In this paper we show that the speed of adjustment is faster when the black market exchange rate is used in testing the PPP as compared to the official exchange rate. This could be another reason as to why central banks should unify the two rates.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 99 (2008)
Issue (Month): 1 (April)
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