A Small Foreign Exchange Market with a Long-Term Peg: Barbados

20 Pages Posted: 13 Nov 2006

See all articles by Roland Craigwell

Roland Craigwell

Central Bank of Barbados

Travis Mitchell

Central Bank of Barbados

DeLisle Worrell

Central Bank of Barbados; Retired

Date Written: October 2006

Abstract

This paper is a first analysis of daily transactions in the foreign exchange market of Barbados, a small open economy that has had an unchanged peg to the U.S. dollar for over 30 years. As a result of the credibility of the peg, we expect that capital flows will respond to differentials between U.S. and comparable Barbadian interest rates and that this will result in uncovered interest parity, when allowance is made for market frictions and large discrete events. The results are consistent with this hypothesis about the motivation for foreign exchange transactions.

Keywords: Foreign exchange, exchange rate, interest parity

JEL Classification: F31, F41

Suggested Citation

Craigwell, Roland and Mitchell, Travis and Worrell, DeLisle, A Small Foreign Exchange Market with a Long-Term Peg: Barbados (October 2006). IMF Working Paper No. 06/245, Available at SSRN: https://ssrn.com/abstract=944083

Roland Craigwell (Contact Author)

Central Bank of Barbados ( email )

Tom Adams Financial Centre
Bridgetown
Barbados

Travis Mitchell

Central Bank of Barbados ( email )

Tom Adams Financial Centre
Bridgetown
Barbados

DeLisle Worrell

Central Bank of Barbados ( email )

PO Box 1016
Spry Street
Bridgetown
Barbados
2462564155 (Phone)

HOME PAGE: http://www.DeLisleWorrell.com

Retired ( email )

Glenisla
Fisherpond
St. Jospeh BB21000
Barbados