Determinants of Parallel Exchange Rate in Myanmar

This paper analyses determinants of the parallel exchange rate in Myanmar. A time series analysis confirms the following points: first, there is a cointegration relationship between the consumer price index and the parallel exchange rate, which is compatible with the general perception that the chronic depreciation is due to the monetization of fiscal deficits. Second, business fluctuations largely accounted for the changes in the parallel rate in the short term, whereas natural gas revenues did have little effect. On the other hand, given the structure of the parallel exchange market, the disparity between the official and the parallel rates per se appears to exert little impact on the private sector.