Purchasing Power Party in the Eastern Caribbean Currency Union

24 Pages Posted: 5 Jan 2005  

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland

Walter O. Simmons

John Carroll University - Boler School of Business

Date Written: February 2004

Abstract

There is increasing interest in regional trade, investment, and currency blocs, and in the optimal public policies for such blocs. There is also much managerial interest in the co-movement of exchange rates in a region. The Eastern Caribbean Currency Bloc is one of only three (and one of the longer lasting) multi-country common central banks in the world and is the only such bank in which member countries pool all their foreign reserves. While it is an important economic region especially for the United States, most studies of regional exchange rate relationships have not examined the nature of Caribbean exchange rates. This paper documents for the first time that purchasing power parity holds for each exchange rate and many real exchange rates are cointegrated and move in a bloc in the Eastern Caribbean region over the 1980s and 1990s.

Keywords: Purchasing Power Parity, Currency Union, Exchange Rates, Caribbean, Currency Bloc

JEL Classification: F31, F15, G15, F42

Suggested Citation

Aggarwal, Raj and Simmons, Walter O., Purchasing Power Party in the Eastern Caribbean Currency Union (February 2004). Available at SSRN: https://ssrn.com/abstract=642804 or http://dx.doi.org/10.2139/ssrn.642804

Raj Aggarwal (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Walter O. Simmons

John Carroll University - Boler School of Business ( email )

Dept. of Economics & Finance
University Heights, OH 44118-4581
United States
212-397-4659 (Phone)
212-397-1728 (Fax)

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