Due to foreign exchange controls in many developing countries, there is a black market for foreign exchange. Since the black market exchange rates are good proxies for the floating exchange rates, they provide relatively more support for the purchasing power parity theory (PPP). In this paper,...

Many less developed countries have currency controls, which can lead to black-market trade and cause distortions in the exchange market. We test the flexible-price monetary model for 25 less developed countries, using both official and black-market exchange rates. We find that the model is...