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The Parallel Market Premium: Is It a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries?

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  • Peter J. Montiel

    (International Monetary Fund)

  • Jonathan D. Ostry

    (International Monetary Fund)

Abstract

It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence, however, does not suggest a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper analyzes the reliability of the parallel market premium as an indicator of real exchange rate misalignment. It suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the premium.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 41 (1994)
Issue (Month): 1 (March)
Pages: 55-75

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Handle: RePEc:pal:imfstp:v:41:y:1994:i:1:p:55-75

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Cited by:
  1. Aykut Kibritcioglu & Bengi Kibritcioglu, 2004. "Real Exchange Rate Misalignment in Turkey, 1987-2003 (in Turkish)," Macroeconomics 0403006, EconWPA, revised 09 Mar 2004.
  2. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth - The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan," IMF Working Papers 06/257, International Monetary Fund.
  3. Salehizadeh, Mehdi & Taylor, Robert, 1999. "A test of purchasing power parity for emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(2), pages 183-193, April.

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