Banana price shocks and the macroeconomy of the Windward Islands

Author(s): Williams, Oral; Sandiford, Wayne; Phipps, Aldrin (1997)

Created 22 Jul, 1997
Categories Working Papers
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This paper traces the impact of a shock to banana prices on key macroeconomic variables for the Windward Islands and the ECCB Monetary Union as a whole. Net foreign assets of Dominica are expected to show the largest decline while those for Grenada that least. The impact on the net foreign assets of the sub-region may be mitigated by other foreign exchange inflows. In addition there was little variation in the growth in M1 with the exception of Dominica, suggesting that the terms of trade shock may be viewed as being temporary and agents borrow to maintain existing tastes and preferences. This result hinged on the nexus between government revenue and the reliance on trade taxes on imports, suggesting some ambiguity in the explanation of the Harberger-Laursen-Meltzer effect.

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