The Black Market for Dollars in Venezuela
17 Pages Posted: 22 Dec 2008
Date Written: December 18, 2008
In February 2003, the Venezuelan government imposed a strict capital control policy to stem the outflow of dollars. We describe the mechanics and structure of the resulting black market for foreign exchange, present a theoretical model in the stock-flow tradition of Dornbusch et al. (1983), and evaluate the performance of our model against past models from the literature. Our model of the Venezuelan black market premium is parsimonious but achieves the lowest RMSE. We find a significant role for the lagged premium, the rate of depreciation of the black market rate, and changes in foreign reserves.
Keywords: Black market, exchange rates, Venezuela, capital controls
JEL Classification: G0, O1
Suggested Citation: Suggested Citation