The Parallel Market Premium: Is It a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries?

Peter Montiel and Jonathan Ostry

IMF Staff Papers, 1994, vol. 41, issue 1, 55-75

Abstract: It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence, however, does not suggest a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper analyzes the reliability of the parallel market premium as an indicator of real exchange rate misalignment. It suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the premium.

JEL-codes: F31 F41 O11 (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (10)

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