The political economy of exchange rate policy in the Caribbean

Author(s): Worrell, DeLisle; Marshall, Don; Smith, Nicole (1998)

Created 22 Jul, 1998
Categories Working Papers
Views: 1743
The Caribbean Economic Community (CARICOM) is a promising laboratory for studying the determinants of exchange rate strategy because in the past 38 years member countries have experienced a variety of regimes, including currency boards, exchange rate auctions and freely floating exchange rates, with, and without Central Bank intervention. These divergent strategies all had common origins, in the currency boards set up by Great Britain in the immediate post-World-War II years. This study searches for causes of the divergence by examining economic and political factors, using quantitative tests and case studies. This study assembles information on economic, political and institutional circumstances in an effort to identify the sources of exchange rate divergence within the Caribbean. A few CARICOM countries were chosen so as to include every variety of exchange rate strategy with which countries have experimented. We include all countries that have flexible exchange rates (Guyana, Jamaica and Trinidad-Tobago), a country which has maintained a pegged exchange rate through a major balance of payments crisis (Barbados) and all the members of the OECS monetary union.

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