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Modelling official and parallel exchange rates in Colombia under alternative regimes: a non-linear approach

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  • Costas Milas
  • Jesus Otero

Abstract

We examine the long-run relationship between the parallel and the official exchange rate in Colombia over two regimes; a crawling peg period and a more flexible crawling band one. The short-run adjustment process of the parallel rate is examined both in a linear and a non-linear context. We find that the change from the crawling peg to the crawling band regime did not affect the long-run relationship between the official and parallel exchange rates, but altered the short-run dynamics. Non-linear adjustment seems appropriate for the first period, mainly due to strict foreign controls that cause distortions in the transition back to equilibrium once disequilibrium occurs.

Suggested Citation

  • Costas Milas & Jesus Otero, 2000. "Modelling official and parallel exchange rates in Colombia under alternative regimes: a non-linear approach," Borradores de Investigación 3231, Universidad del Rosario.
    • Handle: RePEc:col:000091:003231
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    3. Sushanta Mallick & Ricardo Sousa, 2013. "Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies," Open Economies Review, Springer, vol. 24(4), pages 677-694, September.

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    More about this item

    Keywords

    Parallel market; cointegration; non-linear error correction models; Colombia;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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