Issues in Monetary and Fiscal Policy in Small Developing States

A Case Study of the Caribbean

image of Issues in Monetary and Fiscal Policy in Small Developing States

This study examines how monetary and fiscal policies are implemented in Caribbean small states, tracing the differences and similarities in tax structure, current expenditure and current revenues. It shows the impact of monetary policy on inflation and the importance of exchange rate regimes to the effectiveness of monetary policy in the region. The authors show that fiscal stabilisation in the region is very low and as such countries within the region would benefit from insurance mechanisms and stabilisation funds.



Monetary Policy Frameworks of Commonwealth Caribbean Economies

In analysing the implications of monetary policy frameworks in small open economies such as CARICOM member countries, it is useful to contrast the economic outcomes of those which continued to use a prescriptive style where the central bank maintains a fixed exchange rate in conjunction with the use of direct instruments, as opposed to those which exercised a managed float alongside the use of market based instruments. Accordingly, an evaluation of different countries’ experiences can provide insights into the implications of alternative styles of monetary frameworks as adopted by these small open economies. This presumes that the type of monetary framework used can play a role in the resilience of the region in response to negative external economic shocks. The study examines the economic consequences of different styles of monetary policy for the CARICOM economies.


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