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Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union

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Author Info

  • Emilio Pineda
  • Paul Cashin
  • Yan Sun

Abstract

This paper uses three methods to assess movements of real exchange rates in the ECCU over time. First, the purchasing power parity hypothesis is tested and then used to provide a benchmark for equilibrium real exchange rates in the region. Second, a fundamentals-based equilibrium real exchange rate approach is used to explore sources of real exchange rate fluctuations in ECCU countries. And third, a macroeconomic balance approach is used to estimate equilibrium current account or current account "norms". The main finding of these analyses is that there is little evidence of overvaluation of the EC dollar. Furthermore, this paper contributes to the literature by analyzing the distinctive impact of tourism in determining real exchange rates through the wealth effect induced by tourism-driven increases in terms of trade and productivity.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/78.

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Length: 41
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/78

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Keywords: Exchange rates; Eastern Caribbean Currency Union; Real effective exchange rates; Purchasing power parity; Economic models; exchange rate; real exchange rate; current account; current account balance; real exchange rates; real effective exchange rate; effective exchange rate; current account deficit; equilibrium exchange rate; current account balances; central bank; current account deficits; nominal exchange rate; nominal exchange rates; exchange rate misalignment; real exchange rate misalignment; real exchange rate fluctuations; currency board; foreign exchange reserves; foreign exchange; exchange rate shocks; exchange rate fluctuations; budget balance; current accounts; external debt; exchange rate regimes; effective exchange rates; exchange rate regime; exchange reserves; external financing; exchange rate determination; exchange rate misalignments; domestic financial markets; prevailing exchange rate; current account adjustment; exchange rate arrangement; exchange rate deviations; exchange rate volatility; domestic currency; exchange rate data; real exchange rate behavior; sovereign debt; real exchange rate series; debt sustainability; budget balances; average exchange rate; exchange rate index; flexible exchange rate regime; real exchange rate volatility; flexible exchange rate; flexible exchange rates; exchange rate behavior; exchange rate devaluation; real exchange rate appreciation; exchange rate developments;

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References

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Citations

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Cited by:
  1. Paul Cashin & Samya Beidas-Strom, 2011. "Are Middle Eastern Current Account Imbalances Excessive?," IMF Working Papers 11/195, International Monetary Fund.
  2. Paul Cashin & Antonio Lemus, 2012. "The Eastern Caribbean Currency Union," IMF Working Papers 12/17, International Monetary Fund.

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