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Black and Official Exchange Rate Volatility and Foreign Exchange Controls: Evidence from Greece

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  • George Kouretas

    (Department of Economics, University of Crete, Greece)

  • Leonidas Zarangas

    (Department of Finance and Auditing, Technological Educational Institute of Epirus, Greece)

Abstract

This paper examines the issue of volatility and capital controls to the official and black market exchange rates of the Greek Drachma using the monthly exchange rate against the US dollar for the period 1975-93. Specifically, we apply a GARCH(1, 1) model to study the behaviour of the official and black market drachma/dollar exchange rate. The main findings of the analysis are: (i) in contrast to the findings of previous studies using monthly rates, GARCH processes characterize the drachma/dollar exchange rate series in both markets; (ii) the relaxation of foreign exchange controls increased the volatility of the exchange rate in the official market as implied by theory; (iii) the persistence of volatility is reduced when account is taken of the liberalization process of capital movements; and (iv) The forecasts of volatility are improved when the GARCH forecasts are used against traditional measures. Copyright @ 2001 by John Wiley & Sons, Ltd. All rights reserved.
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  • George Kouretas & Leonidas Zarangas, "undated". "Black and Official Exchange Rate Volatility and Foreign Exchange Controls: Evidence from Greece," Working Papers 9811, University of Crete, Department of Economics.
    • Handle: RePEc:crt:wpaper:9811
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    Cited by:

    1. Aslanidis, Nektarios & Kouretas, Georgios P., 2005. "Testing for two-regime threshold cointegration in the parallel and official markets for foreign currency in Greece," Economic Modelling, Elsevier, vol. 22(4), pages 665-682, July.
    2. Kanas, Angelos & Kouretas, Georgios P., 2007. "Regime dependence between the official and parallel foreign currency markets for US dollars in Greece," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 431-449, June.
    3. Balaban, Suzana & Živkov, Dejan & Milenković, Ivan, 2019. "Impact of an unexplained component of real exchange rate volatility on FDI: Evidence from transition countries," Economic Systems, Elsevier, vol. 43(3).
    4. Mina Baliamoune-Lutz, 2010. "Black and official exchange rates in Morocco: an analysis of their long-run behaviour and short-run dynamics (1974-1992)," Applied Economics, Taylor & Francis Journals, vol. 42(27), pages 3481-3490.
    5. Panayiotis Diamandis & Georgios Kouretas & Leonidas Zarangas, 2005. "Expectations and the black market premium for foreign currency in Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 15(10), pages 667-677.

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