Work

Inflation dynamics and the parallel market for foreign exchange

Year: 1995

Type: article

Abstract: Pinto (1990) in World Bank Economic Review 3, 321–338, showed that unification of official and ‘parallel’ market exchange rates may lead to an increase in steady-state inflation, because of the fiscal impact of real official exchange rate changes. This paper shows how this, and other comparative static and stability results in Pinto (1990), are reversed under the assumption that official exchange rate devaluation reduces money creation in the economy. It is argued that this was the case for Uganda in the 1980s, and we give a simple rule of thumb for estimating when unification will increase or decrease steady-state inflation.

Source: Journal of Development Economics

DOI: 10.1016/0304-3878(94)00065-k

Author: Stephen Morris

Institution: University of Pennsylvania

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,590

Funder: Overseas Development Institute