IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/84.html
   My bibliography  Save this paper

Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa

Author

Listed:
  • Pinto, Brian

Abstract

The black market foreign exchange premium is an important implicit tax on exports, creating a conflict between the fiscal goal of financing government spending with a limited menu of tax instruments and the allocative goal of stimulating exports. In this paper, the premium is solved for in a model that includes the portfolio balance approach to exchange rates, dual exchange markets, and seignorage for financing the fiscal deficit. The steady state and dynamic implications for inflation of floats as a vehicle for unifying official and black market rates are then analyzed. Inflation could rise substantially in the new steady state as the lost revenue from exports is replaced with a higher tax on money. Further, the conditions under which undershooting or overshooting occur are parameterized. The paper is motivated by and illustrated with recent examples from sub - Saharan Africa.

Suggested Citation

  • Pinto, Brian, 1988. "Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa," Policy Research Working Paper Series 84, The World Bank.
    • Handle: RePEc:wbk:wbrwps:84
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1988/09/01/000009265_3960927051021/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joshua Aizenman, 1986. "On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 114-133, February.
    2. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    3. Lizondo, JoseSaul, 1987. "Exchange rate differential and balance of payments under dual exchange markets," Journal of Development Economics, Elsevier, vol. 26(1), pages 37-53, June.
    4. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    5. Dornbusch, Rudiger, 1986. "Special Exchange Rates for Capital Account Transactions," The World Bank Economic Review, World Bank, vol. 1(1), pages 3-33, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ebaidalla Mahjoub Ebaidalla, 2017. "Determinants and Macroeconomic Impact of Parallel Market For Foreign Exchange in Sudan," Working Papers 1155, Economic Research Forum, revised 11 2017.
    2. Albert Makochekanwa, 2007. "Zimbabwe’s Black Market for Foreign Exchange," Working Papers 200713, University of Pretoria, Department of Economics.
    3. Hassan, Rashid M., 1989. "A temporary general equilibrium model with endogenous money for economic policy analysis in Sudan," ISU General Staff Papers 1989010108000010129, Iowa State University, Department of Economics.
    4. Sanusi, Aliyu Rafindadi, 2010. "Lessons from the foreign exchange market reforms in Ghana: 1983-2006," MPRA Paper 29502, University Library of Munich, Germany.
    5. Minh Tam Bui, 2018. "Causality in Vietnam’s Parallel Exchange Rate System during 2005–2011: Policy Implications for Macroeconomic Stability," Economies, MDPI, vol. 6(4), pages 1-20, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pinto, Brian, 1988. "Black market premia, exchange rate unification, and inflation in sub-Saharan Africa," Policy Research Working Paper Series 37, The World Bank.
    2. Huizinga, H.P., 1996. "The Taxation Implicit in Two-Tiered Exchange Rate Systems," Discussion Paper 1996-100, Tilburg University, Center for Economic Research.
    3. Frenkel, Jacob A. & Razin, Assaf, 1989. "Exchange-rate management viewed as tax policies," European Economic Review, Elsevier, vol. 33(4), pages 761-781, April.
    4. Goldberg, Linda S., 1995. "Exchange rate regime reforms with black market leakages," Journal of Development Economics, Elsevier, vol. 48(1), pages 167-187, October.
    5. Weck-Hannemann, Hannelore, 1989. "Protectionism in direct democracy," Discussion Papers, Series II 79, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. P. D. Jonson, 1979. "The State of Australian Economics: Stabilization and Industry Policies: A review article stimulated by F. H. Gruen (ed.), Surveys of Australian Economics, Volume 1," The Economic Record, The Economic Society of Australia, vol. 55(4), pages 297-305, December.
    7. Hinnosaar, Toomas, 2024. "Optimal sequential contests," Theoretical Economics, Econometric Society, vol. 19(1), January.
    8. Bin, Sheng, 2000. "The Political Economy of Trade Policy in China," Working Papers 10/2000, Copenhagen Business School, Department of Management, Politics & Philosophy.
    9. Kjell Hausken, 2023. "Two-period Colonel Blotto contest with cumulative investments over variable assets with resource constraints," SN Business & Economics, Springer, vol. 3(11), pages 1-18, November.
    10. Cohen, Joseph N., 2008. "Managing the Faustian bargain: monetary autonomy in the pursuit of development in Eastern Europe and Latin America," MPRA Paper 22435, University Library of Munich, Germany.
    11. Rudi Dornbusch, 2002. "Malaysia's Crisis: Was It Different?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 441-460, National Bureau of Economic Research, Inc.
    12. MENNA, Khaled, 2016. "الاقتصاد السياسي للإصلاحات في الدول الغنية بالموارد الطبيعية: دروس مستقاة من التجربة الجزائرية [The Political Economy of Reforms in Rich Natural Resources Countries: Lessons Driven from the Algeria," MPRA Paper 85385, University Library of Munich, Germany.
    13. Antoine Gentier & Giusepina Gianfreda & Nathalie Janson, 2011. "Rent dissipation or government predation ? The notes issuance activity in Italy 1865-1882," Post-Print hal-00735325, HAL.
    14. James Lake & Maia Linask, 2015. "Costly distribution and the non-equivalence of tariffs and quotas," Public Choice, Springer, vol. 165(3), pages 211-238, December.
    15. Deniz Igan & Prachi Mishra & Thierry Tressel, 2012. "A Fistful of Dollars: Lobbying and the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 195-230.
    16. de Miguel-Arribas, A. & Morón-Vidal, J. & Floría, L.M. & Gracia-Lázaro, C. & Hernández, L. & Moreno, Y., 2024. "Contests in two fronts," Chaos, Solitons & Fractals, Elsevier, vol. 179(C).
    17. Tilman Altenburg, 2011. "Can Industrial Policy Work under Neopatrimonial Rule?," WIDER Working Paper Series wp-2011-041, World Institute for Development Economic Research (UNU-WIDER).
    18. Shrabani Saha & Kunal Sen, 2019. "The corruption-growth relationship: Do political institutions matter?," WIDER Working Paper Series wp-2019-65, World Institute for Development Economic Research (UNU-WIDER).
    19. Suman Banerjee & Saul Estrin & Sarmistha Pal, 2022. "Corporate disclosure, compliance and consequences: evidence from Russia," The European Journal of Finance, Taylor & Francis Journals, vol. 28(17), pages 1770-1802, November.
    20. Gregory, Julian & Sovacool, Benjamin K., 2019. "Rethinking the governance of energy poverty in sub-Saharan Africa: Reviewing three academic perspectives on electricity infrastructure investment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 111(C), pages 344-354.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:84. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.