Inflation dynamics and the parallel market for foreign exchange

Stephen Morris

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


Pinto (1990) in World Bank Economic Review 3, 321-338, showed that unification of official and 'parallel' market exchange rates may lead to an increase in steady-state inflation, because of the fiscal impact of real official exchange rate changes. This paper shows how this, and other comparative static and stability results in Pinto (1990), are reversed under the assumption that official exchange rate devaluation reduces money creation in the economy. It is argued that this was the case for Uganda in the 1980s, and we give a simple rule of thumb for estimating when unification will increase or decrease steady-state inflation.

Original languageEnglish (US)
Pages (from-to)295-316
Number of pages22
JournalJournal of Development Economics
Issue number2
StatePublished - Apr 1995

All Science Journal Classification (ASJC) codes

  • Development
  • Economics and Econometrics


  • Exchange rate
  • Inflation
  • Parallel market


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