Monetary Policy Transmission in the Eastern Caribbean Currency Union

31 Pages Posted: 22 May 2018

See all articles by Alla Myrvoda

Alla Myrvoda

International Monetary Fund (IMF)

Julien P. M. Reynaud

International Monetary Fund (IMF)

Date Written: March 2018

Abstract

This paper empirically investigates international and domestic monetary policy transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving deposit rate (MSR) into domestic interest rates through the interest rate channel. While economic theory suggests that the international pass-through should be high in small open economies with fixed exchange rates and open capital accounts, our findings, based on regression analysis, point to a low long-run pass-through coefficient of the U.S. interest rate. The domestic transmission channel, however, is found to operate through changes in the MSR. The results hold for different interest rates (deposit and lending) and are supported by survey-based findings.

Keywords: Asia and Pacific, Antigua and Barbuda, Dominica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Grenada, Western Hemisphere, monetary policy transmission; interest rate pass-through; ECCU, monetary policy transmission, interest rate pass-through, ECCU, General, Monetary Policy (Targets, Instruments, and Effects)

JEL Classification: E43, E50, E52, F31, F33, F36, O54

Suggested Citation

Myrvoda, Alla and Reynaud, Julien P. M., Monetary Policy Transmission in the Eastern Caribbean Currency Union (March 2018). IMF Working Paper No. 18/70, Available at SSRN: https://ssrn.com/abstract=3182488

Alla Myrvoda (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Julien P. M. Reynaud

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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