The Microstructure of a Small Foreign Exchange Market in a Long-term

Author(s): Worrell; DeLisle (2006)

Created 01 Jan, 2006
Categories Working Papers
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This paper is a first analysis of daily transactions in the foreign exchange market of Barbados, a small open economy that has had an unchanged peg to the U.S. dollar for over 30 years. As a result of the credibility of the peg, we expect that capital flows will respond to differentials between U.S. and comparable Barbadian interest rates, and that these capital flows will result in uncovered interest parity between the Barbadian and the U.S. financial markets, when allowance is made for market frictions and large discrete events.

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