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A Small Foreign Exchange Market with a Long-Term Peg; Barbados

Author

Listed:
  • Travis Mitchell
  • Roland Craigwell
  • Rupert D Worrell

Abstract

This paper 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 U.S. dollar for over 30 years. As a result of the credibility of the peg, we expect that capital flows will respond to differentials between U.S. 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 results are consistent with this hypothesis about the motivation for foreign exchange transactions.

Suggested Citation

  • Travis Mitchell & Roland Craigwell & Rupert D Worrell, 2006. "A Small Foreign Exchange Market with a Long-Term Peg; Barbados," IMF Working Papers 06/245, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/245
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    References listed on IDEAS

    as
    1. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    2. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
    3. International Monetary Fund, 2005. "Adopting the Euro in Central Europe; Challenges of the Next Step in European Integration," IMF Occasional Papers 234, International Monetary Fund.
    4. Koedijk, Kees G. & Lothian, James R. & van Dijk, Mathijs A., 2006. "Foreign exchange markets: Overview of the special issue," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 1-6, February.
    5. repec:cup:apsrev:v:91:y:1997:i:03:p:531-551_21 is not listed on IDEAS
    6. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
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