© 1994 International Bank for Reconstruction and Development / The World Bank
research-article |
Dual Exchange Rates in Europe and Latin America
Nancy P. Marion is with the Department of Economics at Dartmouth College. This article is an outgrowth of the World Bank's project on Macroeconomic Aspects of Multiple and Black Exchange Markets. The author thanks project organizers Miguel Kiguel, Saul Lizondo, and Steve O'Connell; Robert Flood for helpful discussions; Joshua Aizenman, Pablo Guidotti, Mike Knetter, Carsten Kowalczyk, Andrew Oswald, and Alex Zanello for comments on an earlier draft; and John Dean, Murtaza Moochhala, and Rodolfo Luzio-Antezana for research assistance.
This article uncovers some important empirical regularities surrounding the operation of formal dual exchange rates in Europe and Latin America in the 1970s and 1980s. Although there are parallels between the European and Latin American experiences, there are also interesting differences in terms of the size and nature of the distortion created by two official exchange rates; the response of the distortion to foreign interest rates, real commercial exchange rates, and domestic budget deficits; and the motives for adopting this exchange rate regime. Empirical work on dual exchange rate regimes is made difficult by the transitory nature of these regimes and by frequent changes in institutional practices.