Working Papers

De-risking in the Caribbean: The Unintended Consequences of International Financial Reform

2016: This paper analyses the potential causes and consequences on the Caribbean of de-risking strategies adopted by international banks in response to recent changes in bank regulation, reporting requirements and judicial pursuits. These include the initiatives adopted by the Basel Committee, the Financial Action Task Force, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, the US FATCA, and the increasing judicial scrutiny faced by international banks. The impact to date has been felt in the Caribbean across -the-board, including in jurisdictions with competitive, well regulated and transparent international financial centres, which provide high quality financial services.

Prosperity and the Exchange Rate Regime in Small Open Economies

2016: This paper explores the difference in perception between economists and ordinary folk about the importance of stable exchange rates for small open economies. Small open economies everywhere are preoccupied with exchange rate stability, whereas most economists believe that exchange rates should be managed flexibly to maintain competitiveness or allowed to float freely. To most non-economists it is fairly obvious that countries with more stable exchange rates are more prosperous. Our paper finds empirical evidence in support of that view.

Size, Structure and Devaluation

2016: Exchange rate devaluations have been used by economies around the world in an attempt to enhance their external price competitiveness. This paper evaluates the efficacy of this strategy in small-island developing states. We classify countries around the world into two broad categories, large or small according to population, land area and economic size, proxied by GDP. We compare large countries with small countries according to the following dimensions: the country’s share of world export markets, the diversity of exports of goods and services, the elasticity of import demand for consumer and producer goods, and the sensitivity of prices and wages to exchange rate changes. Using these results, we assess the efficacy of devaluation as a competitive strategy in small states as well as in larger countries.

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