Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework
A model is developed incorporating trade and capital restrictions, illegal transactions, a parallel foreign exchange market, currency substitution features, and forward-looking rational expectations. Fully anticipated, expansionary credit and fiscal policies are associated with output and price increases, a fall in the stock of net foreign assets, and a depreciation of the parallel exchange rate. Speed of adjustment is inversely related to the degree of rationing in the official foreign exchange market. A once-for-all devaluation of the official rate has a negative effect on the parallel market premium in the short term, but none in the long term.
Year of publication: |
1990
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Authors: | Agénor, Pierre-Richard |
Published in: |
IMF Staff Papers. - Palgrave Macmillan, ISSN 1020-7635. - Vol. 37.1990, 3, p. 560-592
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Publisher: |
Palgrave Macmillan |
Saved in:
Online Resource
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