Price Dynamics in the Eastern Caribbean

23 Pages Posted: 1 Jul 2008

See all articles by Rupa Duttagupta

Rupa Duttagupta

International Monetary Fund (IMF)

Yan Sun

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: April 2008

Abstract

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.

Keywords: Purchasing power parity, inflation, currency union

JEL Classification: E31, F41

Suggested Citation

Duttagupta, Rupa and Sun, Yan, Price Dynamics in the Eastern Caribbean (April 2008). IMF Working Papers, Vol. , pp. 1-21, 2008. Available at SSRN: https://ssrn.com/abstract=1153754

Rupa Duttagupta

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8583 (Phone)
202-589-8583 (Fax)

Yan Sun (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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