Dual Exchange Markets Under Incomplete Separation: An Optimizing Model

36 Pages Posted: 15 Feb 2006

See all articles by Jagdeep S. Bhandari

Jagdeep S. Bhandari

Wake Forest University - School of Law; International Monetary Fund (IMF)

Carlos Végh

affiliation not provided to SSRN

Date Written: March 1, 1989

Abstract

This paper constructs and analyzes an optimizing model of dual exchange markets which are incompletely separated owing to the presence of fraudulent cross transactions. The model is used to examine the implications of certain shocks, including devaluation. Devaluation first leads to the emergence of a spread with the financial exchange rate being relatively appreciated vis-a-vis the commercial rate. Over time, the financial rate depreciates beyond the level of the commercial rate. In the final phase of adjustment, the spread declines continuously until a zero spread is restored.

JEL Classification: 3116, 4312, 4314

Suggested Citation

Bhandari, Jagdeep S. and Végh, Carlos, Dual Exchange Markets Under Incomplete Separation: An Optimizing Model (March 1, 1989). IMF Working Paper No. 89/19, Available at SSRN: https://ssrn.com/abstract=884632

Jagdeep S. Bhandari (Contact Author)

Wake Forest University - School of Law ( email )

P.O. Box 7206
Winston-Salem, NC 27109
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carlos Végh

affiliation not provided to SSRN

No Address Available

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