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

  • Milas, Costas
  • Otero, Jesus

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.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 20 (2003)
Issue (Month): 1 (January)
Pages: 165-179

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Handle: RePEc:eee:ecmode:v:20:y:2003:i:1:p:165-179
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