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Western Hemisphere > Venezuela

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Cover IMF Working Papers
Inflation and the Black Market Exchange Rate in a Repressed Market: A Model of Venezuela
Ms. Valerie Cerra
This paper presents a stylized general equilibrium model of the Venezuelan economy. The model explains how the recent sharp fall in oil revenue combines with foreign exchange rationing to produce a steep rise in inflation. Counterintuitively, a devaluation of the official exchange rate could temporarily reduce inflation. The model also explains how the hyper-depreciation of the black market exchange rate reflects prices in the most distorted goods markets.
Keywords:
WP; exchange rate; central bank; money supply; inflation; black market; Venezuela; foreign exchange rationing; scarcity; cash in advance constraint; oil revenue; fiscal dominance; aggregate demand; consumption goods; excess demand; representative import firm; goods market; nominal exchange rate; arbitrage firm; price level; repressed goods market; goods importer; export receipt; regime lead; Informal economy; Imports; Exchange rates; Global