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

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Jesus Otero ()
Costas Milas ()

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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. ********************************************************************** En este documento se analiza la relación a largo plazo entre la tasa de cambio oficial y paralela de Colombia, bajo dos régimenes distintos, un periódo de crawling-peg y un periódo más flexible de banda cambiaria. Se analiza el proceo de ajuste a corto plazo de la tasa paralela bajo contextos lineal y no lineal. Como conclusión se detectó que el cambio de régimen de tasa de cambio no afectó la relación a largo plazo entre la tasa de cambio oficial y la paralela, pero sí modificó la relación a corto plazo. Un método de ajuste no lineal parece ser apropiado para formalizar el comportamiento en el primer periodo, principalmente debido a los estrictos controles externos que generan distorsiones en el proceso de retorno al equilibrio, cuando un desequilibrio ha ocurrido.

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Paper provided by UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA in its series BORRADORES DE INVESTIGACIÓN with number 003232.

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Length: 26
Date of creation: 02 Dec 2000
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Handle: RePEc:col:000091:003232

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  1. Booth, G. Geoffrey & Mustafa, Chowdhury, 1991. "Long-run dynamics of black and official exchange rates," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 392-405, September. [Downloadable!] (restricted)
  2. Otero, Jesus G, 1999. "The Real Exchange Rate in Colombia: An Analysis Using Multivariate Cointegration," Applied Economics, Taylor and Francis Journals, vol. 31(5), pages 661-71, May. [Downloadable!] (restricted)
  3. Siklos, Pierre L. & Granger, Clive W.J., 1997. "Regime-Sensitive Cointegration With An Application To Interest-Rate Parity," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 640-657, September. [Downloadable!]
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  4. Dornbusch, Rudiger, et al, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 25-40, February. [Downloadable!] (restricted)
  5. Phylaktis, Kate & Kassimatis, Yiannis, 1994. "Black and Official Exchange Rates in the Pacific Basin Countries: An Analysis of Their Long-Run Dynamics," Applied Economics, Taylor and Francis Journals, vol. 26(4), pages 399-407, April.
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