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Is Black Market Exchange Rate a Good Indicator of Equilibrium Exchange Rate? A Simple Test With Evidence From South Asia

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Author Info

  • M. Shahe Emran

    (Department of Economics and ESIA George Washington University; IPD Columbia University)

  • Forhad Shilpi

    (World Bank)

Abstract

The black market exchange rate premium is widely used in the empirical literature as an indicator of trade and exchange rate distortions. This paper presents a simple test of the null hypothesis that the black market exchange rate is a reliable indicator of the equilibirum exchange rate. The evidence from India and Sri Lanka rejects the null, and thus raises serious doubts about the validity of the current empirical practice.

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File URL: http://128.118.178.162/eps/dev/papers/0406/0406005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0406005.

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Length: 8 pages
Date of creation: 21 Jun 2004
Date of revision: 21 Jun 2004
Handle: RePEc:wpa:wuwpdc:0406005

Note: Type of Document - pdf; pages: 8
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Web page: http://128.118.178.162

Related research

Keywords: Black market exchange rate; Equilibrium exchange rate; Black market exchange premium; India; Sri Lanka; Growth Regressions;

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  1. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers 98-01-012, Santa Fe Institute.
  2. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  3. M Pesaran & Yongcheol Shin & Richard J Smith, 2004. "Bounds Testing Approaches to the Analysis of Long Run Relationships," ESE Discussion Papers 46, Edinburgh School of Economics, University of Edinburgh.
  4. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
  5. Saul Lizondo, Jose, 1987. "Unification of dual exchange markets," Journal of International Economics, Elsevier, vol. 22(1-2), pages 57-77, February.
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