The informational efficiency of the black and official exchange markets of DR-CAFTA nations

Abstract

This study examines the long-run informational efficiency and short-run predictability of the black and official exchange markets of Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) nations. Applying a battery of nonparametric as well as time series models, this study finds that the black market information exhibited a nonrandom behaviour. In four of the six examined countries, the black and official markets were found to have a co-integrating relationship. Both the vector error correction model and the Granger causality test confirmed that the black market information was a good predictor of the official rates.