Black-Markets for Currency, Hoarding Activity and Currency Reform

42 Pages Posted: 8 Nov 2011 Last revised: 11 Nov 2011

See all articles by Linda S. Goldberg

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Il'dar Karimov

affiliation not provided to SSRN

Date Written: August 1992

Abstract

In the former Soviet Union and throughout Eastern Europe, black-market exchange rates and second-economy prices often are interpreted by policy-makers as indicative of post-reform levels. However, these exchange rates and prices can provide highly-biased signals for policy setting. These biases are especially important when exchange rates fixed on the basis of these signals are expected to play a nominal anchor role during stabilizations. This paper traces the paths and biases in black-market exchange rates, second-economy prices, hoarding stocks. and privately-held dollars balances after policy-initiatives or other changes in the economic environment are implemented. The stimuli studied are official exchange-rate adjustments, price reforms, foreign-aid packages, altered risks of monetary confiscation or currency reforms, and goods-supply related initiatives. We provide the conditions under which announcements of reform lead short-run prices or exchange rates to overshoot or to undershoot their long-run equilibrium levels.

Suggested Citation

Goldberg, Linda S. and Karimov, Il'dar, Black-Markets for Currency, Hoarding Activity and Currency Reform (August 1992). NBER Working Paper No. w4153. Available at SSRN: https://ssrn.com/abstract=1956407

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2836 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Il'dar Karimov

affiliation not provided to SSRN

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