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The parallel foreign exchange market and macroeconomic performance in Ethiopia

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  • Derrese Degefa

Abstract

This paper looks into the changes of the parallel premium in relation to the movements of macroeconomic variables. The parallel foreign exchange market arises as a direct consequence of the adoption of exchange rate controls in many developing economies facing substantial macroeconomic imbalances. I attempt to (1) find out the determinants of the parallel premium based on a stock-flow model. (2) examine the impact of the parallel premium on merchandise exports and (3) investigate whether inflation Grangercauses the parallel exchange rate. The estimation results reveal that the parallel premium has a negative effect on merchandise exports and its long-run determinants are real money balances, the real effective exchange rate and inflow of aid (grants). On the other hand, the terms of trade negatively affects the premium only in the short run. In addition, inflation is found to Granger-cause the parallel exchange rate for the period under consideration.

Suggested Citation

  • Derrese Degefa, 2001. "The parallel foreign exchange market and macroeconomic performance in Ethiopia," Working Papers 107, African Economic Research Consortium, Research Department.
    • Handle: RePEc:aer:wpaper:107
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    References listed on IDEAS

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    Cited by:

    1. Pedro M. G. Martins, 2010. "Do Capital Inflows Hinder Competitiveness? The Real Exchange Rate in Ethiopia," Working Paper Series 1110, Department of Economics, University of Sussex Business School.
    2. Chen, Jianda & Choi, Samuel, 2020. "A Practical Mathematical Model For Implicit Export Taxes," Studies in Applied Economics 156, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    3. Ogbulu, Onyemachi Maxwell & Torbira, Lezaasi Lenee, 2017. "Transmission Effect of the Interaction between Parallel and Official Foreign Exchange Markets in Nigeria," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 3(6), pages 76-90, 06-2017.
    4. Kirsneh Alemu Kebede, 2024. "The Effect of Availability of Foreign Exchange and Devaluation of BIRR on the Performance of Companies in Ethiopia (Instance of Sample Company)," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 99-117.
    5. Ndlela, Thandinkosi, 2010. "Implications of real exchange rate misalignment in developing countries: theory, empirical evidence and application to growth performance in Zimbabwe," MPRA Paper 32710, University Library of Munich, Germany.
    6. Thalmann, Philippe & Vielle, Marc & Viguier, Laurent, 2006. "Probabilistic GHG Emissions Forecasts under Energy Prices Uncertainty," Conference papers 331505, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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