Could Changes in Black Market Exchange Rates be Expansionary in LDCs?

Mohsen Bahmani-Oskooee, Gour Gobinda Goswami () and Ilir Miteza ()
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Ilir Miteza: University of Michigan-Dearborn

Economics Bulletin, 2008, vol. 6, issue 13, pages 1-9

Abstract: Many of the previous studies that tried to assess the contractionay or expansionary effects of depreciations or devaluations in less developed countries (LDCs) used official exchange rate data and concluded that devaluations are contractionary in LDCs. However, due to capital controls, there is a black market for foreign exchange in many of the LDCs. In this paper when we use black market rates over the period 1975-1998 from 29 LDCs in a panel model, we find that devaluations are expansionary. Thus, for an effective exchange rate policy the official and black market exchange rates should be unified.

Keywords: Devaluation; domestic output; LDCs; Panel Cointegration. (search for similar items in EconPapers)
JEL-codes: F3 F3 (search for similar items in EconPapers)
Date: 2008 Written 2008-03-26

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