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Parallel Exchange Rates in Developing Countries

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Author Info
Kiguel, Miguel
O'Connell, Stephen A
Abstract

Dual exchange rates and black markets for foreign exchange are common in developing countries, and a body of evidence is beginning to emerge on the effects that such parallel foreign exchange systems have on macroeconomic performance. This article presents a simple typology of parallel systems, discusses their emergence, and looks at why countries prefer these arrangements to the main alternatives. The article examines the ability of parallel markets to insulate international reserves and domestic prices from shocks to the balance of payments. Drawing on the findings from eight detailed case studies, the authors discuss the determination of the parallel premium in the short and long terms, the relationship between the premium and illegal transactions, and the fiscal effects of parallel rates. They compare the experience of countries that have attempted to unify their foreign exchange markets and discuss the implications for policy alternatives. Copyright 1995 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal World Bank Research Observer.

Volume (Year): 10 (1995)
Issue (Month): 1 (February)
Pages: 21-52
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:oup:wbrobs:v:10:y:1995:i:1:p:21-52

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  1. Huang, Jikun & Rozelle, Scott & Martin, Will & Liu, Yu, 2007. "Distortions to Agricultural Incentives in China," Agricultural Distortions Working Paper 48478, World Bank. [Downloadable!]
  2. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring Distortions to Agricultural Incentives, Revisited," CEPR Discussion Papers 6924, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Mohsen Fardmanesh & Seymour Douglas, 2003. "Foreign Exchange Controls, Fiscal and Monetary Policy, and the Black Market Premium," Working Papers 876, Economic Growth Center, Yale University. [Downloadable!]
  4. Guglielmo Maria Caporale & Mario Cerrato, 2006. "Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  5. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Methodology for Measuring Distortions to Agricultural Incentives," Agricultural Distortions Working Paper 48326, World Bank. [Downloadable!]
  6. Onour, Ibrahim & Cameron, Norman, 1997. "Parallel Market Premia and Misalignment of Official Exchange Rates," MPRA Paper 15537, University Library of Munich, Germany. [Downloadable!]
  7. Mohammad Reza Farzanegan, 2008. "Illegal Trade in the Iranian Economy: Evidence from a Structural Model," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Ali Kutan, 1998. "Dynamics of parallel and official exchange rates: The experience of hungary," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(1), pages 54-65, March. [Downloadable!] (restricted)
  9. Li, Ying & Rowe, Francis, 2007. "Aid inflows and the real effective exchange rate in Tanzania," Policy Research Working Paper Series 4456, The World Bank. [Downloadable!]
  10. Kul B. Luintel, 2000. "Real exchange rate behaviour: evidence from black markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 161-185. [Downloadable!]
  11. Panayiotis Diamantis & Dimitris Georgoutsos & George Kouretas, 2001. "The Monetary Approach in the Presence of I(2) Components: A Cointegration Analysis of the Official and Black Market for Foreign Currency in Latin America," Working Papers 0108, University of Crete, Department of Economics. [Downloadable!]
  12. Ibrahim Onour, 2000. "Unification of Dual Foreign Exchange Markets," Economic Change and Restructuring, Springer, vol. 33(3), pages 171-184, October. [Downloadable!] (restricted)
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