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Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union

  • Emilio Pineda
  • Paul Cashin
  • Yan Sun

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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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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  19. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc.
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  25. Mark W Lewis & Aurelie Martin & Gabriel Di Bella, 2007. "Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries," IMF Working Papers 07/201, International Monetary Fund.
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  28. Nishaal Gooroochurn & Adam Blake, 2005. "Tourism Immiserization: Fact or Fiction?," Working Papers 2005.143, Fondazione Eni Enrico Mattei.
  29. Luca Antonio Ricci & Gian Maria Milesi‐Ferretti & Jaewoo Lee, 2013. "Real Exchange Rates and Fundamentals: A Cross‐Country Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 845-865, 08.
  30. Joannes Mongardini & Alexander Chudik, 2007. "In Search of Equilibrium; Estimating Equilibrium Real Exchange Rates in Sub-Saharan African Countries," IMF Working Papers 07/90, International Monetary Fund.
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  33. Hamid Faruqee, 1995. "Pricing to Market and the Real Exchange Rate," IMF Working Papers 95/12, International Monetary Fund.
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