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The behaviour of a small foreign exchange market with a long-term peg-Barbados

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  • DeLisle Worrell
  • Roland Craigwell
  • Travis Mitchell

Abstract

This article is a first analysis of daily transactions in the foreign exchange market of Barbados, a small open economy that has had an unchanged peg to the US dollar for over 30 years. As a result of the credibility of the peg, we expect that capital flows will respond to differentials between US and comparable Barbadian interest rates, and that this will result in uncovered interest parity, when allowance is made for market frictions and large discrete events. The tests appear to confirm this.

Suggested Citation

  • DeLisle Worrell & Roland Craigwell & Travis Mitchell, 2008. "The behaviour of a small foreign exchange market with a long-term peg-Barbados," Applied Financial Economics, Taylor & Francis Journals, vol. 18(8), pages 673-682.
  • Handle: RePEc:taf:apfiec:v:18:y:2008:i:8:p:673-682
    DOI: 10.1080/09603100601131667
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    References listed on IDEAS

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    1. Flood, Robert P & Rose, Andrew K, 2001. "Uncovered Interest Parity in Crisis: The Interest Rate Defence in the 1990s," CEPR Discussion Papers 2943, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Khemraj, Tarron & Pasha, Sukrishnalall, 2011. "Monetary sterilization and dual nominal anchors: some Caribbean examples," MPRA Paper 34503, University Library of Munich, Germany.
    2. Jackman, Mahalia, 2012. "What Prompts Central Bank Intervention in the Barbadian Foreign Exchange Market?," MPRA Paper 41703, University Library of Munich, Germany.
    3. Mahalia Jackman, 2012. "Foreign exchange intervention in a small open economy with a long term peg," Economics Bulletin, AccessEcon, vol. 32(3), pages 2207-2219.

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