Unification of dual foreign exchange markets

In this paper I investigate the impact of overnight floating of the officia l rate and easing foreign exchange restrictions on post-unification domesti c inflation rate. After analysing the behaviour of an economy under dual fo reign exchange markets, an official market with a crawling foreign exchange rate and a free illegal parallel market. The paper also shows that maintai ning a unified free exchange rate depends on the degree of foreign exchange restrictions under dual foreign exchange system and on the level of the of ficial reserve that prompts foreign exchange liberalisation policy.