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Title: |
Exchange Rate Dynamics in Dual Exchange
Markets |
| Author: |
Park, Won-Am |
| Author
Affiliation: |
Hong Ik U |
| Source: |
International Economic Journal, Spring 1995, v. 9, no. 1, pp. 89-109 |
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Publication Date: |
Spring 1995 |
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Abstract: |
This paper analyzes exchange rate dynamics
in dual exchange markets and the impact of unification under various
money supply processes and incomplete segmentation between the
commercial and financial market by utilizing a two-sector general
equilibrium portfolio balance model. It shows that the relationship
between the exchange premium and inflation depends not only on inflation
elasticity of domestic money demand, but also on the mechanism of
domestic credit creation and reserved adjustment. Emphasizing
distortionary taxes cum subsidies created by dual exchange rates, it
also shows that unifying dual exchange rates could lead to lower
inflation by eliminating distortions. |
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