Abstract
This paper provides empirical evidence on the dynamics of dual markets in Hungary during the 1980–93 period using cointegration and error correction methodologies. The results suggest that the official and parallel markets were cointegrated. Short-run dynamics of these rates resulted from the overshooting and adjustment by the parallel rate to shocks, without any adjustment by the official rate. A devaluation had no significant impact on the parallel market premium in the long run. Although the premium declined in the short run, it was relatively small and sluggish. One lesson for the design of stabilization programs in other countries is that a devaluation is not a powerful policy tool to reduce the premium effectively.
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Kutan, A.M. Dynamics of parallel and official exchange rates: The experience of hungary. Atlantic Economic Journal 26, 54–65 (1998). https://doi.org/10.1007/BF02298371
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DOI: https://doi.org/10.1007/BF02298371