Working Papers

Exchange Rate Targetting through Aggregate Demand Management

2013: In their 2010 IMF policy paper, Blanchard, Dell’Ariccia and Mauro observed that central banks of smaller economies were well advised to manage their exchange rates, as well as to contain inflation. They admitted that many countries did in fact pursue both inflation and exchange rate objectives. The present paper takes this argument one step further, demonstrating that the management of aggregate demand, using fiscal policy, is an effective means of achieving an exchange rate target, whether that target is an unchanged exchange rate anchor to a single currency or a basket of currencies, or a stable rate with low volatility.

Economic Prospects for the Caribbean

2013: The economic prospects for the Caribbean depend on creative private sector responses to the challenges of the countries’ markets for exports of goods and services, principally in North America and Europe. Governments’ role is to stabilise exchange rates, thereby minimising inflation and ensuring domestic policy credibility, to support the private sector export thrust in selected, strategic areas, and to secure the social safety net for vulnerable groups in society. These countries have all achieved a relatively good quality of life for their citizens, reflected in Human Development Indices that range from the medium to the highest category; simply by avoiding economic contraction they may preserve a comparatively good lifestyle, in the interval that will be required while new investments in exports, tourism and other export services germinate.

Growth Forecasts for Foreign Exchange Constrained Economies

2012: Insufficiency of foreign exchange may at times constrain the growth of small open economies which lack the domestic resources to produce import substitutes for their consumption, investment and input needs. This study explores the foreign exchange constraint in three small open Caribbean economies, using a structural model of the relationship of foreign exchange earnings and growth, and the economies’ openness to international markets. The model is used to evaluate the prospects of economic growth for these economies, based on the forecast availability of foreign exchange.

Pages