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Trinity Strikes Back: Monetary Independence And Inflation In The Caribbean
Author(s) -
Cevik Serhan,
Zhu Tianle
Publication year - 2020
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.3457
Subject(s) - trilemma , monetary policy , economics , inflation targeting , monetary economics , independence (probability theory) , inflation (cosmology) , exchange rate , monetary hegemony , liberian dollar , macroeconomics , international economics , finance , statistics , physics , mathematics , theoretical physics
Monetary independence is at the core of the macroeconomic policy trilemma. This study examines the relationship between monetary autonomy and inflation in Caribbean countries over the period 1980–2017. The empirical results show that greater monetary policy independence, measured as a country's ability to conduct its own monetary policy for domestic purposes independent of external monetary influences, leads to lower consumer price inflation. This relationship—robust to alternative specifications and estimation methodologies—has clear policy implications, especially for countries that maintain pegged exchange rates relative to the US dollar with a critical bearing on monetary autonomy. © 2019 John Wiley & Sons, Ltd.