Abstract
It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence, however, does not suggest a robust correlation between these two endogenous variables that is independent of the nature of economic shocks and various structural relationships in the economy. This paper analyzes the reliability of the parallel market premium as an indicator of real exchange rate misalignment. It suggests that one should exercise caution in drawing inferences about the sign and magnitude of real exchange rate misalignment from the premium.
Similar content being viewed by others
Rights and permissions
About this article
Cite this article
Montiel, P., Ostry, J. The Parallel Market Premium: Is It a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries?. IMF Econ Rev 41, 55–75 (1994). https://doi.org/10.2307/3867485
Published:
Issue Date:
DOI: https://doi.org/10.2307/3867485