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Working Paper
The use of the parallel market rate as a guide to setting the official exchange rate
This paper addresses the merits of using the parallel exchange rate as a guide to setting the official exchange rate. Ideally, policymakers would set the exchange rate at the level that would balance trade and sustainable capital flows--that level is referred to as the equilibrium exchange rate. In practice, it is difficult to identify the equilibrium exchange rate, particularly in countries that have experienced macroeconomic volatility and/or structural change. In this context, where parallel markets for foreign exchange exist, it is natural to consider the parallel rate as a proxy for the ...