Price Dynamics in the Eastern Caribbean

ByRupa Duttagupta, Yan M Sun

April 1, 2008

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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

The Eastern Caribbean Currency Union (ECCU) countries share a common currency, the EC dollar, which has been pegged to the U.S. dollar at the same rate for more than three decades. This paper examines the influence of the peg on ECCU price stability, and analyzes whether absolute Purchasing Power Parity (PPP) holds within the currency union. It shows that U.S. price stability has helped anchor price movement in the ECCU. As the same time, inflation in the ECCU is not entirely imported from the U.S., and has some domestic policy content. In addition, deviation from PPP within the ECCU can be attributed to persistent price dispersion of nontradables.

Subject: Consumer price indexes, Foreign exchange, Inflation, Price indexes, Prices, Purchasing power parity, Real exchange rates

Keywords: Caribbean, common currency, Consumer price indexes, currency union, deviation from PPP, ECCU country, ECCU exchange rate arrangement, inflation, price index data, Price indexes, price indexes in the ECCU, price level, Purchasing power parity, Real exchange rates, standard deviation, WP

Pages:
21
Volume:
2008
DOI:
https://doi.org/10.5089/9781451869514.001
Issue:
090
Series:
Working Paper No. 2008/090
Stock No:
WPIEA2008090
ISBN:
9781451869514
ISSN:
1018-5941

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