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Zimbabwe’s Black Market for Foreign Exchange

Albert Makochekanwa

No 200713, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper looks into the changes of the black market premium for foreign exchange in Zimbabwe. Generally, the black market for foreign exchange arises as a direct consequence of the adoption of exchange rate controls in many developing economies facing substantial macroeconomic imbalances. Despite its negative impact on Zimbabwe’s economy, this market has not, so far, attracted the attention of researchers. The research attempts to describe the functioning of the black market and find out the determinants of the parallel premium based on a stock-flow model as well as to investigate whether inflation Granger causes the parallel exchange rate. Estimated results reveal that the determinants of the black market premium are international foreign reserves, real exchange rate, lagged values of the black market premium, expected rate of devaluation, money supply and inflation. On the other hand, inflation and black market are found to Granger-cause each other during the period under consideration.

Keywords: Black Market Exchange Rate; Black Market Premium; Foreign Exchange Controls; Cointegration; Granger Causality (search for similar items in EconPapers)
JEL-codes: F31 C23 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2007-07
New Economics Papers: this item is included in nep-afr, nep-cba, nep-ifn and nep-mon
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