Black Market and Official Exchange Rates: Long‐run Equilibrium and Short‐run Dynamics

Guglielmo Maria Caporale and Mario Cerrato

Review of International Economics, 2008, vol. 16, issue 3, 401-412

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.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1111/j.1467-9396.2007.00709.x

Related works:
Working Paper: Black Market and Official Exchange Rates: Long-Run Equilibrium and Short-Run Dynamics (2006)
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:bla:reviec:v:16:y:2008:i:3:p:401-412

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0965-7576

Access Statistics for this article

Review of International Economics is currently edited by E. Kwan Choi

More articles in Review of International Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().