Trinity Strikes Back: Monetary Independence And Inflation In The Caribbean

Abstract

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.

Eye of the Storm: The Impact of Climate Shocks on Inflation and Growth

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“…In other studies, Gruben and McLeod (2002), Gupta (2008), andBadinger (2009) examine the relationship between capital account openness and inflation and find that unrestricted capital mobility lowers inflation by disciplining central banks. More recently, Cevik and Zhu (2020) show that a country's ability to conduct its own monetary policy for domestic purposes independent of external monetary influences leads to lower inflation. This is also consistent with empirical findings that indicate that the adoption of inflation targeting as a monetary policy framework has a significant negative effect on inflation in developing countries (Brito and Bystedt, 2010;Samarina, Terpstra, and De Haan, 2014;Zhang and Wang, 2022).…”