University of Khartoum

A Model of Devaluation-Inflation Cycle Phenomena

A Model of Devaluation-Inflation Cycle Phenomena

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Title: A Model of Devaluation-Inflation Cycle Phenomena
Author: Onour, Ibrahim A.
Abstract: Using a model of dual foreign exchange markets (an official market with a crawling-peg foreign exchange rate and illegal parallel market with a freefloating rate), the paper shows that the adoption of a restrictive import policy in the official market raise the equilibrium parallel market premium rather lower it. The paper also shows that under a fixed (or adjustable peg) exchange rate policy and, with an increasing domestic money supply the use of periodic devaluations of the official exchange rate, in order to restore official reserve loss, could lead to a devaluation-inflation spiral and to eventual collapse of the fixed exchange rate regime.
URI: http://khartoumspace.uofk.edu/handle/123456789/9454
Date: 2013-02


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