Monetary sterilization and dual nominal anchors: some Caribbean examples
AbstractThis paper notes that a high sterilization coefficient plus a de facto pegged exchange rate indicates the existence of dual nominal anchors. The econometric evidence presented shows that several Caribbean economies with fixed exchange rate regimes also possess high sterilization coefficients. Given open capital accounts in the various economies, the paper argues that this finding contravenes the money neutrality thesis, which holds that only one nominal anchor can prevail in the long-term. The paper presents a simple theoretical model to explain this phenomenon. The model combines the liquidity preference of commercial banks with an augmented uncovered interest parity equation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34503.
Date of creation: 01 Mar 2011
Date of revision:
sterilization coefficient; dual nominal anchors; foreign exchange regime;
Find related papers by JEL classification:
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
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