Determinants and macroeconomic impact of parallel market

Abstract EN

This paper attempts to identify the factors that influencing the parallel exchange rate premium in Sudan during the period 1979–2014.

In addition, the impact of parallel exchange rate premium on economic performance is examined; focusing on three key macroeconomic indicators namely, economic growth, inflation and exports.

The empirical results show that parallel exchange rate premium is significantly affected by policy variables such as, real exchange rate, trade openness and money supply.

The results also reveal that GDP growth, expected rate of devaluation, and foreign aid are the most significant factors affecting parallel exchange premium.

Moreover, the results demonstrate that parallel premium has a detrimental impact on both economic growth and export performance.

Expectedly, the results show a positive association between premium and inflation rate.

These outcomes are still hold under robustness checks, indicating that parallel exchange rate premium has negative consequences on macroeconomic performance in Sudan.

Accordingly, the paper concludes with some policy implications that aim to narrow the spread between the black and official exchange rate as an important way out to contain inflationary pressures, improve export competitiveness, and boost economic growth.