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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Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
1990
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Series: | IMF Working Papers
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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 |
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Physical Description: | 44 pages |
ISBN: | 9781451923230 |