{
  "title": "Is the Parallel Market Premium a Reliable Indicator of Real Exchange Rate Misalignment in Developing Countries",
  "publication": "IMF Working Papers, August 1, 1993",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/is-the-parallel-market-premium-a-reliable-indicator-of-real-exchange-rate-misalignment-in-1030",
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  "summary": "It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- The paper examines whether the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries.\n- It presents an analytical investigation within a fully optimizing model of a developing country.\n- Main conclusion: exercise caution in inferring the sign and magnitude of real exchange rate misalignment from the parallel market premium."
    },
    {
      "heading": "Key findings and analysis",
      "content": "- Empirical evidence does not suggest the existence of a robust correlation between the parallel market premium and real exchange rate misalignment that is independent of:\n  - the nature of economic shocks, and\n  - various structural relationships in the economy.\n- The analytical model shows that the relationship between the parallel market premium and real exchange rate misalignment is endogenous and sensitive to model features and shocks.\n- The paper highlights limitations of using the parallel market premium as a standalone indicator for assessing real exchange rate misalignment."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subject: Consumption, Currency markets, Exchange rates, Real exchange rates, Real interest rates\n- Keywords: exchange rate, WP\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/is-the-parallel-market-premium-a-reliable-indicator-of-real-exchange-rate-misalignment-in-1030"
    }
  ],
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/is-the-parallel-market-premium-a-reliable-indicator-of-real-exchange-rate-misalignment-in-1030/index.md)",
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    "Authors: Jonathan David Ostry, Peter J Montiel",
    "Published: August 1, 1993",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451960358.001",
    "The paper examines whether the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries.",
    "It presents an analytical investigation within a fully optimizing model of a developing country.",
    "Main conclusion: exercise caution in inferring the sign and magnitude of real exchange rate misalignment from the parallel market premium.",
    "Empirical evidence does not suggest the existence of a robust correlation between the parallel market premium and real exchange rate misalignment that is independent of:",
    "The analytical model shows that the relationship between the parallel market premium and real exchange rate misalignment is endogenous and sensitive to model features and shocks.",
    "The paper highlights limitations of using the parallel market premium as a standalone indicator for assessing real exchange rate misalignment.",
    "Subject: Consumption, Currency markets, Exchange rates, Real exchange rates, Real interest rates",
    "Keywords: exchange rate, WP"
  ],
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