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|A Model of the Black Market for Dollars|
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The paper develops an analytical framework to discuss the determinants of the premium in the black market for dollars in Brazil. While the specific details of the model were chosen with the Brazilian case in mind, the structure of the model is quite general and suitable for application to black markets for currency elsewhere. The building blocks of the model are three. A capital asset pricing approach is used to derive an asset demand for dollars, or equivalently a real yield premium in market equilibrium. The current account of the black market is specified in terms of the sources and uses in the flow market for dollars, mainly smuggling proceeds and flows associated with tourism. The model is closed by a model of official exchange rate policy and the assumption of rational expectations. ...
Published: Dornbusch, Rudiger; Dantas, Daniel Valente; Pechman; Rocha, Roberto de Rezende; and Simoes Demetrio. "A Model of the Black Market for Dollars." The Quarterly Journal of Economics, (February 1983).