Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union

Author/Editor:

Emilio Pineda ; Paul Cashin ; Yan M Sun

Publication Date:

April 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2009/078

Subject:

Current account balance Purchasing power parity Real effective exchange rates Real exchange rates Tourism

English

Publication Date:

April 1, 2009

ISBN/ISSN:

9781451872255/1018-5941

Stock No:

WPIEA2009078

Pages:

41

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