Further analysis of official and black market exchange rates in Brazil: data transformations and structural changes

This paper extends the previous results in Bessler and Yu (1994) on the official and black market exchange rates in Brazil. Rather than taking instantaneous data transformations to produce a stable long-run equilibrium relationship as Bessler and Yu did, the possibility of structural changes in the long-run relationship was considered. It is found that the two approaches have quite different implications on the long-run dynamics of the data series. It is claimed that to fully understand the dynamics of the exchange rate data series, it is necessary to consider the possibility of structural change and explicitly model it.