Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics

Guglielmo Maria Caporale and Mario Cerrato

No 1851, CESifo Working Paper Series from CESifo

Abstract: This paper presents further empirical evidence on the relationship between black market and official exchange rates in six emerging economies (Iran, India, Indonesia, Korea, Pakistan, and Thailand). First, it applies both time series techniques and heterogeneous panel methods to test for the existence of a long-run relationship between these two types of exchange rates. Second, it tests formally the validity of the proportionality restriction implying a constant black-market premium. Third, it also analyses the short-run dynamic responses of both markets to shocks. Finally, it tries to shed some light on the determinants of the market premium. Evidence of slow reversion to the long-run equilibrium is found. Further, it appears that capital controls and expected currency devaluation are the two main factors affecting the size of the premium and determining the breakdown in the proportionality relationship.

Keywords: black market and official exchange rates; panel cointegration; impulse response functions (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-ifn and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp1851.pdf (application/pdf)

Related works:
Journal Article: Black Market and Official Exchange Rates: Long‐run Equilibrium and Short‐run Dynamics (2008)
Working Paper: BLACK MARKET AND OFFICIAL EXCHANGE RATES:LONG-RUN EQUILIBRIUM AND SHORT-RUN DYNAMICS (2005)
Working Paper: BLACK MARKET AND OFFICIAL EXCHANGE RATES:LONG-RUN EQUILIBRIUM AND SHORT-RUN DYNAMICS (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1851

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().