Title: Predictability of the black and official exchange rates of North American Free Trade Agreement partners

Authors: Shuming Bai, Kai S. Koong, Lai C. Liu, Bin Wang

Addresses: Department of Finance, School of Business, The University of Texas of the Permian Basin, 4901 E. University, Odessa, TX 79762, USA. ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, The University of Texas Pan American, 1201 West University Drive, Edinburg, TX 78539, USA. ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, The University of Texas Pan American, 1201 West University Drive, Edinburg, TX 78539, USA. ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, The University of Texas Pan American, 1201 West University Drive, Edinburg, TX 78539, USA

Abstract: Currency stability is a critical component in global commerce. This study examines the informational efficiency of the black and official exchange markets in the North American Free Trade Agreement partners. Using a series of non-parametric as well as time series models, this study finds that the black market information exhibits a non-random behaviour. The results can have implications for business executives who must deal with exchange rate risks and accumulate wealth. For policy-makers, this study shows that the black market exchange rates can be a useful guide for setting the official rates to ensure economic growth and sustainability.

Keywords: black market; exchange rates; currency market efficiency; economic growth; NAFTA; North American Free Trade Agreement; official exchange rates; sustainability; currency stability; sustainable economy; exchange rate risks; sustainable development.

DOI: 10.1504/IJSE.2008.020017

International Journal of Sustainable Economy, 2008 Vol.1 No.1, pp.70 - 84

Published online: 21 Aug 2008 *

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