Abstract
Due to the lack of long time series data on black market exchange rates, previous research investigated the relation between black market and official exchange rates only for a couple of countries. In this paper, we employ time-series annual data over the 1973–1990 period from 49 countries as well as panel cointegration techniques to show that the black market and official exchange rates do have a long-run relationship. The implication is that any foreign exchange or direct controls will have only short-run effects on the official rate. In the long-run, the official rate will adjust toward the black market rate.
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