IDEAS home Printed from https://ideas.repec.org/a/taf/revpoe/v31y2019i2p159-177.html
   My bibliography  Save this article

Foreign Exchange Pressure in Barbados: Monetary Approach or Monetary Dependence?

Author

Listed:
  • Darrin Downes
  • Tarron Khemraj

Abstract

This paper tests competing ideas that account for the foreign exchange (FX) losses in Barbados in recent years. The conventional monetary and absorption approaches have motivated the explanation and policy proposals to date. However, this paper illustrates that the conventional theories fail to completely account for the external forces determining FX pressure. We propose a theory of monetary dependency by integrating the basic insight of the Prebisch–Singer hypothesis into an institutionally consistent monetary framework. The model implies that the narrow policy space in the short run is overwhelmed by the falling FX supply in the long term — hence the long-term FX constraint which prevents complete adjustment as predicted by the reflux mechanism. Although Barbados is the case study — given its recent program with the IMF — the model of monetary dependence is applicable, in general, to other small open developing and emerging economies. The econometric results indicate tenuous support for the monetarist theory, but stronger evidence in favor of the monetary dependency theory, and indirect support for the absorption approach. Consistent with the idea of external determination, the trade-weighted American dollar exchange rate and its conditional volatility are the strongest determinants.

Suggested Citation

  • Darrin Downes & Tarron Khemraj, 2019. "Foreign Exchange Pressure in Barbados: Monetary Approach or Monetary Dependence?," Review of Political Economy, Taylor & Francis Journals, vol. 31(2), pages 159-177, April.
  • Handle: RePEc:taf:revpoe:v:31:y:2019:i:2:p:159-177
    DOI: 10.1080/09538259.2019.1621504
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09538259.2019.1621504
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/09538259.2019.1621504?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marc Lavoie, 2009. "Introduction to Post-Keynesian Economics," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-23548-9, October.
    2. McKinnon, Ronald I., 2000. "On the periphery of the international dollar standard: Canada, Latin America, and East Asia," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 105-121, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Massimo Cingolani, 2015. "Sylos Labini su Marx: implicazioni per la politica economica (Sylos Labini on Marx: economic policy implications)," Moneta e Credito, Economia civile, vol. 68(269), pages 81-147.
    2. Sasaki, Hiroaki, 2012. "Is the long-run equilibrium wage-led or profit-led? A Kaleckian approach," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 231-244.
    3. Lambert, Thomas, 2021. "The Baran Ratio, Investment, and British Economic Growth and Investment," MPRA Paper 109546, University Library of Munich, Germany.
    4. Nishi, Hiroshi & Stockhammer, Engelbert, 2020. "Distribution shocks in a Kaleckian model with hysteresis and monetary policy," Economic Modelling, Elsevier, vol. 90(C), pages 465-479.
    5. Baccaro, Lucio & Howell, Chris, 2017. "Unhinged: Industrial relations liberalization and capitalist instability," MPIfG Discussion Paper 17/19, Max Planck Institute for the Study of Societies.
    6. Eckhard Hein, 2019. "Karl Marx: an early post-Keynesian? A comparison of Marx's economics with the contributions by Sraffa, Keynes, Kalecki and Minsky," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(2), pages 238-259, September.
    7. Alice Nicole Sindzingre, 2021. "Truth vs justification: contrasting heterodox and mainstream thinking on development via the example of austerity in Africa," CEPN Working Papers hal-03139457, HAL.
    8. Thomas Goda & Özlem Onaran & Engelbert Stockhammer, 2017. "Income Inequality and Wealth Concentration in the Recent Crisis," Development and Change, International Institute of Social Studies, vol. 48(1), pages 3-27, January.
    9. Hein, Eckhard & Dodig, Nina & Budyldina, Natalia, 2014. "Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared," IPE Working Papers 34/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    10. Charles, Sébastien & Dallery, Thomas, 2013. "Le Canada et l’austérité expansionniste dans les années quatre-vingt-dix : un « succès » macroéconomique à revisiter ?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(3), pages 207-230, Septembre.
    11. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    12. Molly Scott Cato, 2014. "From resilient regions to bioregions: An exploration of green post-Keynesianism," Working Papers PKWP1407, Post Keynesian Economics Society (PKES).
    13. W A Jackson, 2015. "Markets and the Meaning of Flexibility," Economic Issues Journal Articles, Economic Issues, vol. 20(2), pages 45-65, September.
    14. Hardt, Lukas & O'Neill, Daniel W., 2017. "Ecological Macroeconomic Models: Assessing Current Developments," Ecological Economics, Elsevier, vol. 134(C), pages 198-211.
    15. Li, Boyao, 2022. "The macroeconomic effects of Basel III regulations with endogenous credit and money creation," MPRA Paper 113873, University Library of Munich, Germany.
    16. Vasiliki Bozani, 2011. "NAIRU, Unemployment and Post Keynesian Economics," Working Papers 1105, University of Crete, Department of Economics.
    17. Lynne Chester & Joy Paton, 2013. "The economic–environment relation: can post-Keynesians, Régulationists and Polanyians offer insights?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 106-121.
    18. Adem LEVENT, 2016. "Power, Market and Techno-Structure in John Kenneth Galbraith’s Thought," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(2), pages 214-218, June.
    19. A. G. Malliaris, 2005. "Global monetary instability: The role of the IMF, the EU and NAFTA," World Scientific Book Chapters, in: Economic Uncertainty, Instabilities And Asset Bubbles Selected Essays, chapter 20, pages 323-343, World Scientific Publishing Co. Pte. Ltd..
    20. Eugenio Caverzasi, 2014. "Minsky and the Subprime Mortgage Crisis: The Financial Instability Hypothesis in the Era of Financialization," Economics Working Paper Archive wp_796, Levy Economics Institute.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:revpoe:v:31:y:2019:i:2:p:159-177. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CRPE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.