Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework
A model is developed incorporating trade and capital restrictions, illegal transactions, a parallel foreign exchange market, currency substitution features, and forward-looking rational expectations. Fully anticipated, expansionary credit and fiscal policies are associated with output and price increases, a fall in the stock of net foreign assets, and a depreciation of the parallel exchange rate. Speed of adjustment is inversely related to the degree of rationing in the official foreign exchange market. A once-for-all devaluation of the official rate has a negative effect on the parallel market premium in the short term, but none in the long term.
Volume (Year): 37 (1990)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:|| Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK|
Web: http://www.palgrave-journals.com/pal/subscribe/index.html Email:
When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:37:y:1990:i:3:p:560-592. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniel Foley)
If references are entirely missing, you can add them using this form.