A model of price formation for small economies: three Caribbean examples

Author(s): Holder, Carlos; Worell, DeLisle (1984)

Created 24 Jul, 1984
Categories Working Papers
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This paper presents a small model for treating the question of domestic inflationary pressures in an analysis of price formation in small open economies. Foreign prices will clearly have a powerful effect, but can they be overshadowed by fiscal and monetary expansion or interest rate and exchange rate policy? Domestic effects arise via the price of non-tradable goods, which are determined by domestic demand and supply. Demand is influenced by expenditure and hence by monetary and fiscal policies and the balance of payments, while supply curves shift with changes in local and imported costs. The model is tested for three Caribbean countries. (These papers are still in draft form and are subject to revision. Please do not quote or reproduce without the expressed permission of the author)

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