Cointegration analysis of the black market and official exchange rates in India

Hamid Baghestani and John Noer

Journal of Macroeconomics, 1993, vol. 15, issue 4, 709-721

Abstract: The examination of stochastic properties of the black market and official exchange rates in India reveals that the series are cointegrated and, therefore, possess a longrun equilibrium relation. The black rate is found to be more sensitive to shocks, and at the same time, adjusts more quickly to departures from the long-run equilibrium relation. This is expected, since the policy-determined official rate was set by what seems to be a sluggish and/or arbitrary mechanism, and that the black had to largely respond and adjust to the exogenous shocks in order to maintain the long-run equilibrium relation.

Date: 1993
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