Exchange rate behavior with currency inconvertibility
1982; Elsevier BV; Volume: 12; Issue: 1-2 Linguagem: Inglês
10.1016/0022-1996(82)90075-7
ISSN1873-0353
Autores Tópico(s)Complex Systems and Time Series Analysis
ResumoThe paper analyzes exchange rate dynamics in a world where the domestic currency is inconvertible into foreign currency and there is a ‘black market’ for foreign exchange. The official exchnage rate is thus set by policy but the black market rate is determined by portfolio balance. The stock of domestic money changes with the reported current account and the stock of foreign assets of the private sector changes with smuggling and other unreported current account transactions. The effects of capital and current account disturbances as well as the effects of changes in the level and the rate of crawl of the official rate on the black market premium and on the currency substitution ratio are analyzed in variants of the basic model.
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