Exchange Control, Black Market for Foreign Exchange, and Employment in a Model with a Nontraded Good

13 Pages Posted: 4 Mar 2004

See all articles by Rajat Acharyya

Rajat Acharyya

Jadavpur University - Department of Economics

Abstract

This paper examines the employment effect of devaluation in a model with a nontraded good and a black market for foreign exchange. The disaggregative approach reveals, in contrast to an earlier one-sector analysis, that overall employment may change even if the exchange control is such that aggregate output remains the same following devaluation. But in such a situation, depending on the state of the market, the change in nontradables demand due to a change in the black market exchange rate constitutes the major source of a contractionary effect, and that too happens when, most desirably, the black market rate appreciates.

Suggested Citation

Acharyya, Rajat, Exchange Control, Black Market for Foreign Exchange, and Employment in a Model with a Nontraded Good. Available at SSRN: https://ssrn.com/abstract=468914

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