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The synchronization of business cycles in CARICOM

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  • Carlton Augustine

Abstract

Purpose - This paper aims to assess the feasibility of the proposed Caribbean Monetary Union (CMU) by examining the synchronization of business cycles within CARICOM. According to the literature on optimum currencies, the synchronization of business cycles is a key requirement for the formation of a monetary union. Design/methodology/approach - In order to extract the business cycles we use the Hodrick‐Prescott (HP) filter and the band pass (BP) filter. For the purposes of measuring synchronization two concepts are used: the simple correlation coefficient and the Concordance statistic of Pagan and Harding. First, the feasibility of enlarging the Eastern Caribbean Currency Union is examined and then consideration is given to the formation of a new monetary union with Trinidad and Tobago as the center. Findings - The paper finds the degree of business cycle synchronization to be weak. This casts doubt on the feasibility of the proposed CMU. Research limitations/implications - This paper has placed emphasis on the synchronization of business cycles. While the synchronization of business cycles is necessary, is not sufficient for a successful monetary union. Other factors such as political cohesion may be just as important. Originality/value - This paper's main contribution is that it employs a more rigorous framework and a more comprehensive data set than previous studies.

Suggested Citation

  • Carlton Augustine, 2008. "The synchronization of business cycles in CARICOM," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 7(1), pages 29-40, June.
    • Handle: RePEc:eme:ijdipp:v:7:y:2008:i:1:p:29-40
    DOI: 10.1108/14468950810880008
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    Citations

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    Cited by:

    1. Samuel Braithwaite, 2017. "What Do Demand and Supply Shocks Say About Caribbean Monetary Integration?," The World Economy, Wiley Blackwell, vol. 40(5), pages 949-962, May.
    2. Juan Carlos Cuestas & Carlyn Ramlogan-Dobson, 2013. "Convergence of Inflationary Shocks: Evidence from the Caribbean," The World Economy, Wiley Blackwell, vol. 36(9), pages 1229-1243, September.
    3. Eric Pentecost & Paul Turner, 2010. "Demand and Supply Shocks in the Caribbean Economies: Implications for Monetary Union," The World Economy, Wiley Blackwell, vol. 33(10), pages 1325-1337, October.

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