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Dual Exchange Markets under Incomplete Separation: An Optimizing Model

Author

Listed:
  • Jagdeep S. Bhandari

    (International Monetary Fund)

  • Carlos A. Végh

    (International Monetary Fund)

Abstract

An optimizing model of dual exchange markets that are incompletely separated owing to the presence of fraudulent transactions is analyzed. The model is used to examine the implications of unanticipated and permanent changes in the commercial exchange rate and government spending. It is shown that these disturbances generate nonmonotonic responses in both the spread between the commercial and the financial rates and in capital flows. These results are contrasted with those obtained under complete market separation.

Suggested Citation

  • Jagdeep S. Bhandari & Carlos A. Végh, 1990. "Dual Exchange Markets under Incomplete Separation: An Optimizing Model," IMF Staff Papers, Palgrave Macmillan, vol. 37(1), pages 146-167, March.
    • Handle: RePEc:pal:imfstp:v:37:y:1990:i:1:p:146-167
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    Cited by:

    1. Agenor, Pierre-Richard & Khan, Mohsin S., 1996. "Foreign currency deposits and the demand for money in developing countries," Journal of Development Economics, Elsevier, vol. 50(1), pages 101-118, June.
    2. Goldberg, Linda S., 1995. "Exchange rate regime reforms with black market leakages," Journal of Development Economics, Elsevier, vol. 48(1), pages 167-187, October.
    3. Flood, Robert & Perraudin, William & Vitale, Paolo, 1998. "Reserve and exchange rate cycles," Journal of International Economics, Elsevier, vol. 46(1), pages 31-59, October.
    4. Fuhmei Wang, 2003. "Leakages in dual exchange markets," Prague Economic Papers, Prague University of Economics and Business, vol. 2003(3), pages 249-264.

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