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Banana price shocks and adjustment within a unified currency area

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Author Info

  • Oral Williams
  • Wayne Sandiford
  • Aldrin Phipps

Abstract

The paper traces the impact of a shock to banana prices on key macroeconomic variables for the Windward Islands and the Eastern Caribbean Central Bank (ECCB) Monetary Union as a whole. Net foreign assets of Dominica are expected to show the largest decline while those for Grenada the least. The impact on the net foreign assets of the subregion 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 money-output neutrality. Government revenues were not adversely affected 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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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 31 (1999)
Issue (Month): 11 ()
Pages: 1455-1466

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Handle: RePEc:taf:applec:v:31:y:1999:i:11:p:1455-1466

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Cited by:
  1. Hazel Selvon & Tracy Polius & Oral Williams, 2001. "Reserve Pooling in the Eastern Caribbean Currency Union and the CFA Franc Zone," IMF Working Papers 01/104, International Monetary Fund.

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