Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98321
Authors: 
Fardmanesh, Mohsen
Douglas, Seymour
Year of Publication: 
2003
Series/Report no.: 
Center Discussion Paper 876
Abstract: 
This paper examines the relationship between the official and parallel exchange rates, in three Caribbean countries, Guyana, Jamaica and Trinidad, during the 1985-1993 period using cointegration, Granger causality, and reduced form methods. The official and parallel rates are cointegrated in all three countries, but with significant average disparity between them in Guyana and Trinidad, which unlike Jamaica applied infrequent and large adjustments to their official rates. The causation is bi-directional in the case of Jamaica and uni-directional, with changes in the official rate Granger causing changes in the parallel rate, in the cases of Guyana and Trinidad, reflecting the difference in their official exchange rate policies. Our reduced form estimates indicate that exchange controls, expansionary fiscal and monetary policy, and changes of government mostly have the expected positive effect on the black market premium. After past values of the premium, exchange controls exert the strongest impact on the premium.
Subjects: 
Foreign Exchange Controls
Black Market Exchange Rate
Black Market Premium
Cointegration
Granger Causality
JEL: 
F31
Document Type: 
Working Paper

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