Contractionary devaluation with black markets for foreign exchange

Steven B. Kamin

No 370, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Analyses of the possible contractionary effects of exchange rate devaluation typically assume the foreign exchange market to be unified, thereby ignoring the large fraction of transactions taking place in the black market for foreign exchange that exist in many developing countries. This paper explores how the existence of these black markets may alter the impact of an official devaluation on aggregate output. It is argued that devaluations will be followed by less immediate contraction in a blackmarket economy than in a unified-market economy, both because the black market exchange rate will depreciate by less than the official rate, and because many of the devaluation's contractionary effects will occur in anticipation of the official devaluation itself. These propositions are tested using a simple numerical simulation model.

Keywords: Foreign; exchange; rates (search for similar items in EconPapers)
Date: 1990
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/1990/370/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/1990/370/ifdp370.pdf (application/pdf)

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:fip:fedgif:370

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().