The Premium in Black Foreign Exchange Markets

Abstract

This paper examines the determinants of the premia between the black and official exchange rates using monthly data for 17 developing countries. The premium is hypothesized to be positively influenced by the official depreciation-adjusted interest rate differential and dollar value of domestic assets. It is hypothesized to be negatively influenced by the official real exchange rate, exports, and a seasonal factor associated with tourism. The countries studied are: Bangladesh, Brazil, Fiji, Gambia, Ghana, Guyana, Hungary, Ireland, Jamaica, Kenya, Nepal, Nigeria, Philippines, Somalia, South Africa, Uganda, and the former Yugoslavia. In general, the results are very supportive of the model. It is found that the interest rate differential and assets positively influence the premium, as is expected. The official real exchange rate is found to negatively influence the premium.

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