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Leakages in dual exchange markets

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  • Fuhmei Wang

Abstract

The issue of determining inter-market foreign exchange flows under dual exchange markets has been hotly debated. Typically the literature has concentrated on the behavior of the financial premium, leaving aside equally important aspects such the reasons for and characteristics of incomplete separation. Our analytical results suggest that cross transactions arise as long as the government changes the commercial rate. Time inconsistency of policy brings opportunity for leakages between two markets. We also find that the more patient the government, the less likely the occurrence of commercial depreciation and leakages will be. Then reputation could be as a deterrent to leakages

Suggested Citation

  • Fuhmei Wang, 2003. "Leakages in dual exchange markets," Prague Economic Papers, Prague University of Economics and Business, vol. 2003(3), pages 249-264.
    • Handle: RePEc:prg:jnlpep:v:2003:y:2003:i:3:id:217
    DOI: 10.18267/j.pep.217
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    References listed on IDEAS

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    More about this item

    Keywords

    dual exchange markets; leakages; reputation;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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