The long-run relation between black market and official exchange rates: evidence from panel cointegration

Due to the lack of long time series data on black market exchange rates, previous research investigated the relation between black market and official exchange rates only for a couple of countries. In this paper, we employ time-series annual data over the 1973–1990 period from 49 countries as well as panel cointegration techniques to show that the black market and official exchange rates do have a long-run relationship. The implication is that any foreign exchange or direct controls will have only short-run effects on the official rate. In the long-run, the official rate will adjust toward the black market rate.