Exchange Rate, Foreign Borrowing and Economic Stability in Barbados

25 Pages Posted: 20 Feb 2011

See all articles by Arindam Banik

Arindam Banik

International Management Institute

Date Written: February 20, 2011


This paper shows how sound macro-economic management generates reputation-building behaviour in the international lending market. While current account deficits need not imply an imminent devaluation, their impact on foreign exchange reserves and the manner in which they are funded are important analytical factors in explaining credit worthiness and foreign borrowing. It suggests that the amount borrowed from the international market in the current year is due to macro-outcomes in the lagged year. Similar result appears to hold for exchange rate, external debt and change in foreign reserve.

Keywords: Foreign Borrowing, Deficit, Good Time, Bad Time, Small Country, Barbados, Economic Management, Fixed Exchange Rate, Economic Stability

JEL Classification: E44, E62, F32

Suggested Citation

Banik, Arindam, Exchange Rate, Foreign Borrowing and Economic Stability in Barbados (February 20, 2011). Available at SSRN: or

Arindam Banik (Contact Author)

International Management Institute ( email )

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