Black market exchange rates in India: an empirical analysis

Jalal Siddiki

Empirical Economics, 2000, vol. 25, issue 2, 297-313

Abstract: In this paper, we explore the determinants of black market (BM) exchange rates in India using annual data from 1955-1994 and integration and cointegration analysis. Two important factors, namely the import capacity of official foreign exchange reserves and restrictions on international trade, have largely been ignored as determinants of BM rates. We stress the importance of these two factors and incorporate them, with others more familiar in the literature, in our theoretical and empirical model for BM rates in India. Our empirical findings show that a low level of official foreign exchange reserves negatively and a high level of trade restrictions positively affect BM rates. We show that the flexible Bretton Woods exchange rate policies for India in 1973 have a negative impact on BM rates. The results also reveal that interest rate policies positively affect BM rates. Thus, our empirical model lends support to the trade and monetary approaches to BM rates and hence, trade restrictions with excess money supply should be removed to eliminate the BMs for forex in India.

Keywords: Black market exchange rate; cointegration and error correction; trade liberalisation; forex reserves; India (search for similar items in EconPapers)
JEL-codes: C2 F4 O5 (search for similar items in EconPapers)
Date: 2000-05-24
Note: Received: September 98/Final Version Received: January 2000
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.de/link/service/journals/00181/papers/0025002/00250297.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
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:spr:empeco:v:25:y:2000:i:2:p:297-313

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().