Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework
44 Pages Posted: 15 Feb 2006
Date Written: March 1990
Abstract
The paper develops and tests a model of a developing economy that incorporates trade and capital restrictions, illegal transactions, a parallel foreign exchange market, currency substitution features, and forward-looking rational expectations. Temporary expansionary demand policies are associated with an increase in output and prices, a fall in the stock of net foreign assets, and a depreciation of the parallel exchange rate. The speed of adjustment is inversely related to the degree of rationing in the official foreign currency market. A once-forall devaluation of the official exchange rate has no long-term effect on the premium.
JEL Classification: 131, 431
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Flight Capital as a Portfolio Choice
By Paul Collier, Anke Hoeffler, ...
-
Flight Capital as a Portfolio Choice
By Paul Collier, Anke Hoeffler, ...
-
A Theory of Expropriation and Deviations from Perfect Capital Mobility
By Jonathan Eaton and Mark Gersovitz
-
By S. Ibi Ajayi
-
By James K. Boyce and Leonce Ndikumana
-
Country Risk and the Organization of International Capital Transfer
By Jonathan Eaton and Mark Gersovitz
-
Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries
By Leonce Ndikumana and James K. Boyce
-
Optimal Incentives to Domestic Investment in the Presence of Capital Flight
By Assaf Razin and Efraim Sadka