Modelling Black Market for Dollars in Sudan: Volatility Analysis

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 exhibit short memory behavior, implying price changes reflect most recent information. Analysis of impulse response effects show the market is unaffected by shocks in global fundamental factors. A policy implication of these results is that the pricing mechanism in the black market may not reflect a competitive pricing system. As a result, official exchange rate emulation of the black market rate, may lead to distortion of resource allocation in the economy.