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Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela

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  • Ms. Valerie Cerra

Abstract

This paper presents a stylized general equilibrium model of the Venezuelan economy. The model explains how the recent sharp fall in oil revenue combines with foreign exchange rationing to produce a steep rise in inflation. Counterintuitively, a devaluation of the official exchange rate could temporarily reduce inflation. The model also explains how the hyper-depreciation of the black market exchange rate reflects prices in the most distorted goods markets.

Suggested Citation

  • Ms. Valerie Cerra, 2016. "Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela," IMF Working Papers 2016/159, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/159
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    References listed on IDEAS

    as
    1. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-625, June.
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    1. Barredo, Juan & Feliciano, Daniel, 2025. "Venezuela's economic merry-go-round in the 21st century: a study through the prism of the political management of the oil rent," Resources Policy, Elsevier, vol. 105(C).
    2. Francisco Rodríguez & Patrick Imam, 2025. "Political growth collapses," Public Choice, Springer, vol. 205(1), pages 183-217, October.
    3. Santiago Mosquera & Federico Sturzenegger, 2021. "Cepo para principantes," Working Papers 151, Universidad de San Andres, Departamento de Economia, revised Apr 2021.
    4. Gilberto González-Parra & Benito Chen-Charpentier & Abraham J. Arenas & Miguel Díaz-Rodríguez, 2022. "Mathematical Modeling of Physical Capital Diffusion Using a Spatial Solow Model: Application to Smuggling in Venezuela," Economies, MDPI, vol. 10(7), pages 1-16, July.
    5. García, Carlos J. & Mejía, Jesisbé, 2018. "Macroeconomic stabilization of primary commodities price cycles in developing economies," Journal of Policy Modeling, Elsevier, vol. 40(5), pages 1050-1066.
    6. Ge Gao & Alex Nikolsko‐Rzhevskyy & Oleksandr Talavera, 2023. "Can central banks be heard over the sound of gunfire?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(S1), pages 183-203, December.

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