Develops and tests a monetary model of the parallel market for foreign exchange which incorporates forward-looking expectations and currency substitution features. Econometric results using quarterly data for a group of 12 developing countries show that changes in official exchange rates and...

Exchange rate reforms in developing countries have often aimed at floating the exchange rate in an attempt to unify the official and parallel markets for foreign exchange. This paper examines the anticipatory dynamics associated with such reforms. The analysis shows that if the future unified...