IMF Working Papers

Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela

By Valerie Cerra

August 3, 2016

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Valerie Cerra. Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela, (USA: International Monetary Fund, 2016) accessed December 4, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper presents a stylized general equilibrium model of the Venezuelan economy. The model explains how the recent sharp fall in oil revenue combines with foreign exchange rationing to produce a steep rise in inflation. Counterintuitively, a devaluation of the official exchange rate could temporarily reduce inflation. The model also explains how the hyper-depreciation of the black market exchange rate reflects prices in the most distorted goods markets.

Subject: Economic sectors, Exchange rates, Foreign exchange, Imports, Inflation, Informal economy, International trade, Prices

Keywords: Aggregate demand, Arbitrage firm, Black market, Cash in advance constraint, Central bank, Consumption goods, Excess demand, Exchange rate, Exchange rates, Export receipt, Fiscal dominance, Foreign exchange rationing, Global, Goods importer, Goods market, Imports, Inflation, Informal economy, Money supply, Nominal exchange rate, Oil revenue, Price level, Regime lead, Representative import firm, Repressed goods market, Scarcity, Venezuela, WP

Publication Details

  • Pages:

    52

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2016/159

  • Stock No:

    WPIEA2016159

  • ISBN:

    9781475523201

  • ISSN:

    1018-5941