Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange A Formal Framework

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 wi...

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Main Author: Agénor, Pierre-Richard
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1990, 1990
Series:IMF Working Papers; Working Paper
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Summary: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-for-all devaluation of the official exchange rate has no long-term effect on the premium
Physical Description:44 p.
ISBN:9781451923230
1451923236