Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics
This paper presents further empirical evidence on the relationship between black market and official exchange rates in six emerging economies (Iran, India, Indonesia, Korea, Pakistan, and Thailand). First, it applies both time series techniques and heterogeneous panel methods to test for the existence of a long-run relationship between these two types of exchange rates. Second, it tests formally the validity of the proportionality restriction implying a constant black-market premium. Third, it also analyses the short-run dynamic responses of both markets to shocks. Finally, it tries to shed some light on the determinants of the market premium. Evidence of slow reversion to the long-run equilibrium is found. Further, it appears that capital controls and expected currency devaluation are the two main factors affecting the size of the premium and determining the breakdown in the proportionality relationship.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Newey, Whitney K & West, Kenneth D, 1994.
"Automatic Lag Selection in Covariance Matrix Estimation,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(4), pages 631-53, October.
- Newey, W.K. & West, K.D., 1992. "Automatic Lag Selection in Covariance Matrix Estimation," Working papers 9220, Wisconsin Madison - Social Systems.
- Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers 0144, National Bureau of Economic Research, Inc.
- Mario Cerrato & Nicholas Sarantis, 2007. "Does purchasing power parity hold in emerging markets? Evidence from a panel of black market exchange rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 427-444.
- Lence, Sergio & Falk, Barry, 2005.
"Cointegration, market integration, and market efficiency,"
Journal of International Money and Finance,
Elsevier, vol. 24(6), pages 873-890, October.
- Lence, Sergio H. & Falk, Barry L., 2005. "Cointegration, Market Integration, and Market Efficiency," Staff General Research Papers 11468, Iowa State University, Department of Economics.
- Nita Ghei & Steven B. Kamin, 1996. "The use of the parallel market rate as a guide to setting the official exchange rate," International Finance Discussion Papers 564, Board of Governors of the Federal Reserve System (U.S.).
- Kiguel, Miguel & O'Connell, Stephen A, 1995. "Parallel Exchange Rates in Developing Countries," World Bank Research Observer, World Bank Group, vol. 10(1), pages 21-52, February.
- Kilian, Lutz, 1999. "Exchange Rates and Monetary Fundamentals: What Do We Learn from Long-Horizon Regressions?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 491-510, Sept.-Oct.
- Chihwa Kao & Suzanne McCoskey, 1997.
"A Residual-Based Test Of The Null Of Cointegration In Panel Data,"
- Suzanne McCoskey & Chihwa Kao, 1998. "A residual-based test of the null of cointegration in panel data," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 57-84.
- George Kouretas & Leonidas Zarangas, .
"Black and Official Exchange Rates in Greece: An Analysis of their long-run dynamics,"
9902, University of Crete, Department of Economics.
- Kouretas, Georgios P. & Zarangas, Leonidas P., 2001. "Black and official exchange rates in Greece: an analysis of their long-run dynamics," Journal of Multinational Financial Management, Elsevier, vol. 11(3), pages 295-314, July.
- Mario Cerrato & Neil Kellard & Nicholas Sarantis, 2008. "The Purchasing Power Parity Persistence Puzzle: Evidence From Black Market Real Exchange Rates," Manchester School, University of Manchester, vol. 76(4), pages 405-423, 07.
- Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems,"
Econometric Society, vol. 61(4), pages 783-820, July.
- James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
- Tom Doan, . "SWDOLS: RATS procedure to estimate cointegrating vectors using dynamic OLS," Statistical Software Components RTS00207, Boston College Department of Economics.
- Bahmani-Oskooee, Mohsen & Miteza, Ilir & Nasir, A. B. M., 2002. "The long-run relation between black market and official exchange rates: evidence from panel cointegration," Economics Letters, Elsevier, vol. 76(3), pages 397-404, August.
- Li, Hongyi & Maddala, G. S., 1997.
"Bootstrapping cointegrating regressions,"
Journal of Econometrics,
Elsevier, vol. 80(2), pages 297-318, October.
- Tom Doan, . "RATS program to demonstrate bootstrapping with cointegration," Statistical Software Components RTZ00021, Boston College Department of Economics.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1851. 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: (Julio Saavedra)
If references are entirely missing, you can add them using this form.