Black Market Premium, Case study: Republic of Belarus

Sammanfattning: We extend the theory of uncovered interest rate parity to explain the black market premium. The theory is applied to different economic-monetary regimes in Belarus and tested through the estimation of a vector error-correction model (VECM) for the cointegrating relationship between black market prices, interest rate differentials and inflation differentials, using a newly created dataset. In support of the theory, our findings suggest that the black market premium is highly affected by the in!ation differential, whereas the impact from the nominal interest rate differential is not straightforward. We do not find support for the presence of a constant risk premium prevailing on the market.