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Zimbabwe’s Black Market for Foreign Exchange

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  • Albert Makochekanwa

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper looks into the changes of the black market premium for foreign exchange in Zimbabwe. Generally, the black market for foreign exchange arises as a direct consequence of the adoption of exchange rate controls in many developing economies facing substantial macroeconomic imbalances. Despite its negative impact on Zimbabwe’s economy, this market has not, so far, attracted the attention of researchers. The research attempts to describe the functioning of the black market and find out the determinants of the parallel premium based on a stock-flow model as well as to investigate whether inflation Granger causes the parallel exchange rate. Estimated results reveal that the determinants of the black market premium are international foreign reserves, real exchange rate, lagged values of the black market premium, expected rate of devaluation, money supply and inflation. On the other hand, inflation and black market are found to Granger-cause each other during the period under consideration.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200713.

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Length: 39 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:pre:wpaper:200713

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Related research

Keywords: Black Market Exchange Rate; Black Market Premium; Foreign Exchange Controls; Cointegration; Granger Causality;

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  1. Lindauer, David L., 1989. "Parallel, fragmented, or black? Defining market structure in developing economies," World Development, Elsevier, Elsevier, vol. 17(12), pages 1871-1880, December.
  2. Dornbusch, Rudiger, et al, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(1), pages 25-40, February.
  3. Guglielmo Maria Caporale & Mario Cerrato, 2006. "Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics," CESifo Working Paper Series 1851, CESifo Group Munich.
  4. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
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Cited by:
  1. Makochekanwa, Albert & Kwaramba, Marko, 2010. "Dwindling access to basic services in Zimbabwe," MPRA Paper 28271, University Library of Munich, Germany.

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