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- Title
ASSESSING EXCHANGE RATE COMPETITIVENESS IN THE EASTERN CARIBBEAN CURRENCY UNION.
- Authors
PINEDA, EMILIO; CASHIN, PAUL; YAN SUN
- Abstract
This paper uses three methods to assess movements of real exchange rates in the Eastern Caribbean Currency Union (ECCU) over time. First, the purchasing power parity hypothesis is tested and then used to provide a benchmark for equilibrium real exchange rates. Second, a fundamentals-based equilibrium real exchange rate approach is used to explore sources of real exchange rate fluctuations. And third, a macroeconomic balance approach is used to estimate equilibrium current account or current account "norms". The main finding of these analyses is that there is little evidence of overvaluation of the EC dollar as of end-2008. Furthermore, this paper contributes to the literature by analyzing the distinctive impact of tourism in determining real exchange rates through the wealth effect induced by tourism-driven increases in terms of trade and productivity.
- Subjects
CARIBBEAN; FOREIGN exchange rates; PURCHASING power parity; TOURISM; BALANCE of payments; MACROECONOMICS; TERMS of trade
- Publication
Journal of Business, Finance & Economics in Emerging Economies, 2010, Vol 5, Issue 1, p109
- ISSN
1991-4636
- Publication type
Article