Exchange rate regimes and monetary autonomy: Empirical evidence from selected Caribbean countries

Craigwell, Roland and Greenidge, Kevin and Maynard, Tracy (2009): Exchange rate regimes and monetary autonomy: Empirical evidence from selected Caribbean countries. Published in: Central Bank of Barbados Economic Review , Vol. 36, No. 2 (2009): pp. 22-36.

Abstract

This paper uses the error correcting methodology to investigate how pegged and non-pegged exchange rate regimes in a set of Caribbean countries affect the closeness of the relationship between changes in a base country rate and the local rate. This interest rate parity condition is subjected to effects arising from capital controls and common shocks related to inflation and external debt. The results support the standard theory that peg countries (like Barbados) follow the base country interest rate more closely than the managed float or flexible rate economies (such as Trinidad and Tobago and Jamaica). In addition, the paper supports the open economy macroeconomic policy trilemma proposition that only two of the following goals – stability in the exchange rate, national independence in monetary policy and free capital mobility- can be achieved simultaneously.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rates, Monetary policy, Error correcting mechanisms
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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