Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries

Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries PDF

Author: Mr.Peter Montiel

Publisher: International Monetary Fund

Published: 1993-08-01

Total Pages: 26

ISBN-13: 1451960352

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It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence does not, however, suggest the existence of a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper presents an analytical investigation of the reliability of the parallel market premium as an indicator of real exchange rate misalignment in the context of a fully optimizing model of a developing country. The analysis suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the parallel market premium.

Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries?

Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries? PDF

Author: Peter J. Montiel

Publisher:

Published: 2006

Total Pages: 26

ISBN-13:

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It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence does not, however, suggest the existence of a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper presents an analytical investigation of the reliability of the parallel market premium as an indicator of real exchange rate misalignment in the context of a fully optimizing model of a developing country. The analysis suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the parallel market premium.

Parallel Currency Markets in Developing Countries

Parallel Currency Markets in Developing Countries PDF

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 1990-12-01

Total Pages: 52

ISBN-13: 1451943229

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The paper reviews recent theoretical and empirical developments in the analysis of informal currency markets in developing countries. The basic characteristics of these markets are highlighted, and alternative analytical models to explain them are discussed. The implications for exchange rate policy —including imposition of foreign exchange restrictions, devaluation, and unification of exchange markets— in countries with a sizable parallel market are also examined.

Parallel Market Premia and Misalignment of Official Exchange Rates

Parallel Market Premia and Misalignment of Official Exchange Rates PDF

Author: Ibrahim A. Onour

Publisher:

Published: 2004

Total Pages: 0

ISBN-13:

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Due to restrictive foreign exchange policy and active parallel markets for foreign exchange in some developing countries, it is often believed that the real official exchange rate is undervalued (overvaluing the domestic currency). Since an overvalued domestic currency depress official current account below its equilibrium level, while an undervalued domestic currrency may be inflationary, it is important to be able to detect real official exchange rate misalignment as early as possible. This is difficult in economies where paparallel market for foreign currencies are well established and where it is therefore difficult to observe an underlying capital flows. We show that the direction of real official rate misalignment is identifiable without knowing the size of capital flow in the parallel market. We indicate that a change in the parallel market premium is an appropriate indicator of change in real official rate misalignment.

Globalization and Autocentricity in Africa's Development in the 21st Century

Globalization and Autocentricity in Africa's Development in the 21st Century PDF

Author: Kidane Mengisteab

Publisher: Africa World Press

Published: 1996

Total Pages: 242

ISBN-13: 9780865435599

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African economies are the most dependent and the most marginalised in the global system. Prevailing policies to integrate these economies more closely with the global economy are, in the view of many misplaced and this work presents a series of alternative strategies that will tap the energies of the African people to develop their own potential and reduce their dependence on World Bank/IMF-led approaches.

IMF Staff papers

IMF Staff papers PDF

Author: International Monetary Fund. Research Dept.

Publisher: International Monetary Fund

Published: 1994-01-01

Total Pages: 176

ISBN-13: 1451930887

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The paper presents a model of optimum currency areas using a general equilibrium approach with regionally differentiated goods. The choice of a currency union depends upon the size of the underlying disturbances, the correlation between these disturbances, the costs of transactions across currencies, factor mobility across regions, and the interrelationships between demand for different goods. It is found that, while a currency union can raise the welfare of the regions within the union, it unambiguously lowers welfare for those outside the union. [JEL F33, F36]

Research Activities of the IMF, January 1991-December 1999

Research Activities of the IMF, January 1991-December 1999 PDF

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2000-01-01

Total Pages: 144

ISBN-13: 9781557759801

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Research activity in the IMF emphasizes the links between the organization's policy and operational concerns. The main objectives of research is IMF staff understanding of policy and operational issues relevant to the institution, and to improve the analytical quality of the work prepared for management and the Executive Board and the advice provided to member countries. The scope of research in the IMF is defined by the purposes and functions of the institution. In order to foster innovation and ensure quality control, the IMF makes much of its research available outside the institution and encourages staff to interact with academia and other research organizations through conferences, seminars, and occasional joint research projects. The visiting scholar’s program has also enhanced the quality of research done in the IMF. This program brings in leading members of the economics profession from around the world to assist in the preparation of papers for the Executive Board and to conduct research on IMF-related issues.

Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries

Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries PDF

Author: Gabriel Di Bella

Publisher: International Monetary Fund

Published: 2007-08

Total Pages: 54

ISBN-13:

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Assessing a country's competitiveness routinely starts with an analysis of the real exchange rate. However, in low-income countries, empirical analysis of the real exchange rate is often subject to important limitations that seriously weaken the results. This paper summarizes the methodologies used to assess real exchange rate misalignments and discusses the range of obstacles common to low-income countries. Recognizing the importance of using a wide range of indicators for assessing competitiveness in low-income countries, the paper discusses alternative competitive measures and then proposes a template of indicators to allow for a systematic assessment of competitiveness in low-income countries. The template is then used to rank countries according to their competitiveness performance in 2006.

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