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Collapsing exchange rate regimes in the presence of a parallel market

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  • Kathleen Dorsainvil

Abstract

This paper develops a model of an economy where the fixed exchange rate is overvalued and coexists with a parallel market for foreign currency. Such a situation persists because the parallel marker is used by the central authorities as an instrument to delay policy changes. Using the Haitian experience, this paper estimates a rationing parameter of foreign currency in the official market which translates the extent of tolerance of the parallel market. The paper also produces estimates of onestep-ahead probability of devaluation. Rationing has been severe and the probability of collapse has reached high levels during the period studied.

Suggested Citation

  • Kathleen Dorsainvil, 2000. "Collapsing exchange rate regimes in the presence of a parallel market," Applied Economics, Taylor & Francis Journals, vol. 32(6), pages 671-680.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:6:p:671-680
    DOI: 10.1080/000368400322282
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    References listed on IDEAS

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    1. Daekuen Park & Jeffrey Sachs, 1987. "Capital Controls and the Timing of Exchange Regime Collapse," NBER Working Papers 2250, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dorsainvil, Kathleen, 2001. "The parallel market as a policy instrument in collapsing exchange rate regimes," Journal of Economics and Business, Elsevier, vol. 53(1), pages 27-43.

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