Modelling Volatility in Black market for dollars: A Case of a Siege Economy

Abstract

To capture volatility dynamic in the black market for foreign exchange in Sudan, in this paper we allowed a quadratic response of volatility to good and bad news. Results of asymmetric conditional volatility of the black market rate indicate bad news have more significant impact on volatility of the black market rate than the impact of good news. Evidence of volatility persistence shows the black market price exhibits short memory behavior, implying price changes reflect most recent information. Analysis of impulse response effects shows that the market is weakly linked to international currency and commodity markets.