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Camila Casas, Mr. Federico J Diez, Ms. Gita Gopinath, and Pierre-Olivier Gourinchas
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
International Monetary Fund. Western Hemisphere Dept.
This 2014 Article IV Consultation highlights that St. Vincent and the Grenadines’ economic recovery from the global economic crisis has been curbed by a series of significant natural disasters. These, combined with the economic downturn following the global financial crisis, have prevented the economy from returning to its long-term potential real GDP growth. The overall fiscal balance is estimated to have narrowed to 4.75 percent of GDP in 2014. After an estimated 1.1 percent growth rate in 2014, growth is projected to pick up modestly to 2.1 percent in 2015 on improvements in tourism and agriculture and enhanced implementation of much-needed rehabilitation and reconstruction projects.
Rafael Romeu
An opening of Cuba to U.S. tourism would represent a seismic shift in the Caribbean's tourism industry. This study models the impact of such a potential opening by estimating a counterfactual that captures the current bilateral restriction on tourism between the two countries. After controlling for natural disasters, trade agreements, and other factors, the results show that a hypothetical liberalization of Cuba-U.S. tourism would increase long-term regional arrivals. Neighboring destinations would lose the implicit protection the current restriction affords them, and Cuba would gain market share, but this would be partially offset in the short-run by the redistribution of non-U.S. tourists currently in Cuba. The results also suggest that Caribbean countries have in general not lowered their dependency on U.S. tourists, leaving them vulnerable to this potential change.
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
Mr. Andrei A Levchenko and Quý Toàn Ðo
We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, and property rights. In our model, firms differ in their preferences for institutional quality, which is determined endogenously in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
International Monetary Fund
This Selected Issues paper and Statistical Appendix reviews developments in the energy sector of the Republic of Trinidad and Tobago during 1997–99, and assesses the outlook for energy-related industries. The paper highlights that in 1998, the decline of mature fields was exacerbated by the low price of oil experienced during the year, which made exploitation of some fields uneconomic. The paper examines the fiscal sustainability of energy resources. It also analyzes trade liberalization that has been an integral part of Trinidad and Tobago’s efforts to restructure its economy for sustained growth.
International Monetary Fund
In recent years, the IMF has released a growing number of reports and other documents covering economic and financial developments and trends in member countries. Each report, prepared by a staff team after discussions with government officials, is published at the option of the member country.
International Monetary Fund
This paper examines the Uruguay Round and its implications for the Dominican Republic. The ratification of the Uruguay Round Agreement has several implications for the Dominican Republic. Certain regulatory and legislative reforms will have to be addressed, some new specific institutional mechanisms developed, and several commitments will have to be implemented. In addition, the competitiveness of the Dominican Republic regarding several export products may be affected. The paper highlights that the Dominican Republic has committed to unifying all import charges to no more than a harmonized level of 40 percent.