COINTEGRATION ANALYSIS OF THE BLACK-MARKET AND OFFICIAL EXCHANGE-RATES IN INDIA

The examination of stochastic properties of the black market and offic ial exchange rates in India reveals that the series are cointegrated a nd, therefore, possess a long-run equilibrium relation. The black rate is found to be more sensitive to shocks, and at the same time, adjust s more quickly to departures from the long-run equilibrium relation. T his is expected, since the policy-determined official rate was set by what seems to be a sluggish and/or arbitrary mechanism, and that the b lack had to largely respond and adjust to the exogenous shocks in orde r to maintain the long-run equilibrium relation.