Could Changes in Black Market Exchange Rates be Expansionary in LDCs?

Bahmani‐Oskooee, Mohsen; Goswami, Gour Gobinda; Miteza, Ilir

Could Changes in Black Market Exchange Rates be Expansionary in LDCs?

Bahmani-Oskooee, M., Goswami, G. G., and Miteza, I. (2008). "Could Changes in Black Market Exchange Rates beExpansionary in LDCs?", Economics Bulletin, 6(13), 1-9.

10 Pages Posted: 18 May 2020

See all articles by Mohsen Bahmani‐Oskooee

Mohsen Bahmani‐Oskooee

University of Wisconsin - Milwaukee - Center for Research on International Economics

Many of the previous studies that tried to assess the contractionary or expansionary effects of depreciations or devaluations in less developed countries (LDCs) used official exchange rate data and concluded that devaluations are contractionary in LDCs. However, due to capital controls, there is a black market for foreign exchange in many of the LDCs. In this paper when we use black market rates over the period 1975-1998 from 29 LDCs in a panel model,we find that devaluations are expansionary. Thus, for an effective exchange rate policy the official and black market exchange rates should be unified.

Keywords: Black Market Exchange Rate

JEL Classification: F3

Suggested Citation: Suggested Citation

Bahmani-Oskooee, Mohsen and Goswami, Gour Gobinda and Miteza, Ilir, Could Changes in Black Market Exchange Rates be Expansionary in LDCs? (2008). Bahmani-Oskooee, M., Goswami, G. G., and Miteza, I. (2008). "Could Changes in Black Market Exchange Rates beExpansionary in LDCs?", Economics Bulletin, 6(13), 1-9., Available at SSRN: https://ssrn.com/abstract=3573472