ECCU Business Cycles: Impact of the U.S.

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. With a fixed peg to the U.S. dollar for more than three decades, the tourism-dependent Eastern Caribbean Currency Union (ECCU) countries share a close economic relationship with the U.S. This paper analyzes the impact of the United States on ECCU business cycles and identifies possible transmission channels. Using two different approaches (the common trends and common cycles approach of Vahid and Engle (1993) and the standard VAR analysis), it finds that the ECCU economies are very sensitive to both temporary and permanent movements in the U.S. economy and that such linkages have strengthened over time. There is, however, less clear-cut evidence on the transmission channels. United States monetary policy does not appear to be an important channel of influence, while tourism is important for only one ECCU country.

Before and after the Global Financial Crisis: Evaluating the Caribbean's Synchronization with Global Engines of Growth

“…This work shared features with that of Sun and Samuel's 2009 research analyzing common trends and common cycles of the Caribbean and the US within a bilateral framework. As some of the results in Sun and Samuel (2009) our previous model predicted an over-amplification of the US cycle in some Caribbean nations.…”

“…Our different approach follows from the current global financial crisis and our interest in understanding growth dynamics off the trend path. Also, our study extends that of Sun and Samuel (2009) to include a larger group of Caribbean nations.…”

“…Their main contribution is to identify a strong heterogeneity in the results, showing that some Caribbean nations follow a common trend and cycle path as that of the US (like the ECCU economies) while others follow a different trend but are affected by the US cycles (like Guyana and Jamaica). Sun and Samuel (2009) is the most similar work to the analysis we conduct in this paper. Our study differs in that we do not put emphasis in the common trend but analyze the influence of the cycle of the partner economy.…”

The Global Role of the U.S. Economy: Linkages, Policies and Spillovers

“…This estimate for advanced economies is in line with other estimates for Canada(Swiston and Bayoumi 2008). For Mexico and Caribbean economies with strong economic ties to the United States, considerably larger spillovers in excess of 1 percentage point have been estimated(Sun and Samuel 2009;Swiston and Bayoumi 2008). 9 See Berkmen et al (2012); de Grauwe and Yi (2016); Frankel and Saravelos (2012); Helbling et al (2011); Metiu, Hilberg, and Grill (2015).…”

Currency Area and Non-Synchronized Business Cycles between the US and Puerto Rico

“…For African countries, Adom, Sharma, and Morshed (2010) find short-run co-movements. Likewise, for ECCU countries 3 , Sun and Samuel (2009) find that those countries are very sensitive to US shocks and Canadian shocks.…”