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Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela
Author:
Ms. Valerie Cerra
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 159
Language:
English
Publication Date:
03 Aug 2016
DOI:
https://doi.org/10.5089/9781475523201.001
ISBN:
9781475523201
ISSN:
1018-5941
Pages:
52
Keywords:
WP; exchange rate; central bank; money supply; inflation; black market; Venezuela; foreign exchange rationing; scarcity; cash in advance constraint; oil revenue; fiscal dominance; aggregate demand; consumption goods; excess demand; representative import firm; goods market; nominal exchange rate; arbitrage firm; price level; repressed goods market; goods importer; export receipt; regime lead; Informal economy; Imports; Exchange rates; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2016: Issue 159