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A Currency Union for the Caribbean


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  • DeLisle Worrell
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    The experiences of Caribbean Economic Community countries show that exchange rate depreciation in these countries is inflationary, and that, while changes in the relative prices of tradables may affect exports, tourism, and imports, nominal exchange rate changes have no predictable effect on those relative prices. Under these circumstances, economic literature indicates that a fixed exchange rate regime is optimal, and Caribbean countries with (quasi-) currency boards have been successful in maintaining durable exchange rate pegs. Commitment to a currency board is a potentially vital step in achieving a currency union for the Caribbean.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/35.

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    Length: 35
    Date of creation: 01 Feb 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/35

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    Keywords: Dollarization; Eastern Caribbean Currency Union; exchange rate; exchange rate changes; exchange rates; monetary union; foreign exchange; nominal exchange rate; exchange rate regime; currency boards; exchange rate policy; transactions costs; open economies; exchange rate change; fixed exchange rate; real exchange rate; exchange rate peg; monetary integration; foreign exchange reserves; exchange reserves; domestic prices; real exchange rates; current account balance; exchange rate uncertainty; exchange rate regimes; international trade; balance of payments; economic integration; open economy; exchange rate depreciation; domestic price; fixed exchange rate regime; domestic demand; exchange rate anchor; open market; real effective exchange rates; exchange rate stability; regional integration; currency risk; export performance; world price; flexible exchange rates; nominal exchange rates; effective exchange rates; exchange rate policies; common market; tradable goods; agricultural exports; exchange rate pegs; exchange rate flexibility; foreign investment; domestic banks; export diversification; seigniorage revenues; exchange rate movements; economic community; exchange rate expectations; export equations; effective exchange rate; trade growth; exchange rate crisis; oil exporter; export sectors; country of origin; currency areas; dynamic gains; exchange rate volatility; value of exports; economic convergence; world prices; external shocks; fixed exchange rates; employment growth; exchange rate movement; world price index; imported inputs; floating exchange rate regimes; aggregate demand; monetary unions; fixed capital formation; real effective exchange rate; exchange rate management; market integration; exchange rate misalignment; exchange rate arrangements; trade diversion; open regionalism; exchange rate adjustment; real exchange rate changes; increasing trade; dollar exchange rates; trade creation; political economy; fixed investment; exporting countries; trading partners; balance of payments crisis; exchange rate fluctuation; floating exchange rates; real ? exchange rate; export growth; output growth; foreign ownership; world market; stable exchange rates; flexible exchange rate; exchange rate crises; domestic market; exchange rate unification; trade policies; floating exchange rate; export sector;


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    1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
    2. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications, Inter-American Development Bank, Research Department 4170, Inter-American Development Bank, Research Department.
    3. Masters, William A. & Ianchovichina, Elena, 1998. "Measuring exchange rate misalignment: Inflation differentials and domestic relative prices," World Development, Elsevier, Elsevier, vol. 26(3), pages 465-477, March.
    4. Carmen M. Reinhart & Vincent R. Reinhart, 2001. "What Hurts Most? G-3 Exchange Rate or Interest Rate Volatility," NBER Working Papers 8535, National Bureau of Economic Research, Inc.
    5. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment," IMF Occasional Papers 167, International Monetary Fund.
    6. DeLisle Worrell, 2000. "Monetary and Fiscal Coordination in Small Open Economies," IMF Working Papers 00/56, International Monetary Fund.
    7. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
    8. Ian W. Marsh & Stephen Tokarick, 1994. "Competitiveness Indicators," IMF Working Papers 94/29, International Monetary Fund.
    9. Peter Robson, 1993. "The New Regionalism and Developing Countries," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 31(3), pages 329-348, 09.
    10. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 386-390, May.
    11. Calvo, Guillermo A & Vegh, Carlos A, 1995. "Fighting Inflation with High Interest Rates: The Small Open Economy Case under Flexible Prices," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 49-66, February.
    12. Hjalmar Böhm & Michael Funke, 2001. "Does the Nominal Exchange Rate Regime Matter for Investment?," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20105, Hamburg University, Department of Economics.
    13. Rosensweig, Jeffrey A., 1988. "Elasticities of substitution in Caribbean tourism," Journal of Development Economics, Elsevier, Elsevier, vol. 29(1), pages 89-100, July.
    14. Holder, Carlos & Worrell, DeLisle, 1985. "A model of price formation for small economies : Three Caribbean examples," Journal of Development Economics, Elsevier, Elsevier, vol. 18(2-3), pages 411-428, August.
    15. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications 4128, Inter-American Development Bank.
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    Cited by:
    1. Fritz, Barbara & Mühlich, Laurissa, 2007. "South-south monetary integration: the case for a research framework beyond the theory of optimum currency area," Discussion Papers 2007/20, Free University Berlin, School of Business & Economics.


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