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Mohsen Bahmani-Oskooee, Ilir Miteza and Gour Goswami
''Could Changes in Black Market Exchange Rates be Expansionary in LDCs?''
( 2008, Vol. 6 No.13 )
Many of the previous studies that tried to assess the contractionay 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.
JEL: F3 - International Finance: General
F3 - International Finance: General
Manuscript Received : Dec 18 2007 Manuscript Accepted : Mar 26 2008

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