Parallel Market Premia and Misalignment of Official Exchange Rates
Due to restrictive foreign exchange policy and active parallel markets for foreign exchange in some developing countries, it is often believed that the real official exchange rate is undervalued (overvaluing in domestic currency). Since an overvalued domestic currency depresses official current account below its equilibrium level, while an undervalued domestic currency may be inflationary, it is important to be able to detect real official rate misalignment as early as possible.This is difficult in economies where parallel markets for foreign currencies are well established, and where it is therefore to observe underlying capital flows.We show that the direction of real official rate misalignment is identfiable without knowing the size of capital flow in the parallel market. We indicate that a change in the parallel market premium is an appropriate indicator of change in real official rate misalignment.
|Date of creation:||02 Jun 1997|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- Ibrahim Onour, 2000.
"Unification of Dual Foreign Exchange Markets,"
Economic Change and Restructuring,
Springer, vol. 33(3), pages 171-184, October.
- Onour, Ibrahim A, 2000. "Unification of Dual Foreign Exchange Markets," Economic Change and Restructuring, Springer, vol. 33(3), pages 171-184.
- Rudiger Dornbusch & Daniel Valente Dantas & Clarice Pechman & Roberto de Rezende Rocha & Demetrio SimÅes, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 25-40.
- Chander Kant, 2002. "What is Capital Flight?," The World Economy, Wiley Blackwell, vol. 25(3), pages 341-358, March.
- Saul Lizondo, Jose, 1987. "Unification of dual exchange markets," Journal of International Economics, Elsevier, vol. 22(1-2), pages 57-77, February. Full references (including those not matched with items on IDEAS)