Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates
This paper analyzes the business cycle characteristics of the economies of the Organization of Eastern Caribbean States using a model of a small open economy subject to interest rate and fiscal expenditure shocks and financial frictions. The paper...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/01/25833246/business-cycles-eastern-caribbean-economies-role-fiscal-policy-interest-rates http://hdl.handle.net/10986/23717 |
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okr-10986-23717 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
CREDIT MARKETS MONETARY POLICY HOLDING GOVERNMENT EXPENDITURES ECONOMIC GROWTH REAL INTEREST RATES STOCK INTERNATIONAL CREDIT FISCAL DEFICITS DISPOSABLE INCOME INCOME INTEREST GOVERNMENT SPENDING EMERGING ECONOMIES DOMESTIC FINANCIAL MARKETS INTEREST RATE REAL GDP EXCHANGE GOVERNMENT REVENUES INTERNATIONAL BOND MARKET GDP PER CAPITA INTERNATIONAL FINANCIAL MARKETS DEVELOPING COUNTRIES EXPORTS ELASTICITY REAL INTEREST POLITICAL ECONOMY EXPORTERS REVENUES ECONOMIC STRUCTURE PORTFOLIO FISCAL POLICY WELFARE RISK PREMIUM BONDS MIDDLE INCOME COUNTRY LOAN VARIABLES DISCOUNT LOAN AMOUNT CAPITAL CONSTRAINT TAX NON-PERFORMING LOANS RETURNS TO SCALE WEALTH INFLATION INTERNATIONAL BANK TRENDS ECONOMIC OUTLOOK MACROECONOMIC RISK BUDGET FISCAL CONSTRAINTS INTEREST EXPENDITURES ECONOMIC ACTIVITY DEVELOPMENT BOND TRADING FISCAL POLICIES INFLUENCE TRADE BALANCE OIL PRICES TOTAL FACTOR PRODUCTIVITY MARKET DEVELOPMENT DEVELOPMENT ECONOMICS RENT DEBTS INCOME INEQUALITY CONSTANT RETURNS TO SCALE TRADING PRODUCTIVITY INTERNATIONAL BOND INTEREST RATES MONETARY FUND NATURAL DISASTERS NET EXPORTS MARKETS DEBT RETURN DEFICITS INFLATION RATE OPEN ECONOMY LENDERS BUSINESS CYCLE INCOME LEVELS LOANS TAX REVENUES REAL INTEREST RATE ELASTICITY OF SUBSTITUTION UTILITY BORROWING COSTS GROSS DOMESTIC PRODUCT FINANCE ECONOMIC RESEARCH TAXES FIXED EXCHANGE RATE LDCS INVESTMENT DECISIONS EXPENDITURE DEBT LEVELS PRODUCTIVITY GROWTH CONSUMPTION BUDGET CONSTRAINT HUMAN CAPITAL INDUSTRIAL ECONOMIES GOOD CAPITAL WAGES COUNTRY RISK FINANCIAL CRISIS FUTURE VALUE RETURNS CREDIT MACROECONOMICS PERMANENT INCOME GOVERNMENT EXPENDITURE UTILITY FUNCTION INTEREST PAYMENT AGGREGATE DEMAND BOND MARKET WORKING CAPITAL ECONOMIC FLUCTUATIONS GOVERNMENT REVENUE ECONOMY AGRICULTURE EXPENDITURES ELASTICITY OF LABOR SUPPLY PROPERTIES DOMESTIC FINANCIAL MARKET HUMAN CAPITAL DEVELOPMENT MARKET BENCHMARK MACROECONOMIC VARIABLES BUSINESS CYCLES FUNCTIONAL FORMS GOVERNMENT DEBT GOVERNMENT POLICIES TRADE INVESTMENT RATES GDP GOODS ECONOMIES OF SCALE FINANCIAL MARKET GROWTH RATE MACROECONOMIC VOLATILITY INVESTMENT BOND SHARE FINANCIAL MARKETS CAPITAL REQUIREMENT GINI COEFFICIENT REVENUE LEVIES LENDING CONSUMER PRICE INDEX STATISTICAL ANALYSIS CONSUMPTION FUNCTION GDP DEFLATOR REMITTANCES PROFITS INTEREST RATE POLICIES COMMODITY PRICES OPEN ECONOMIES MARGINAL UTILITY MACROECONOMIC PERFORMANCE INTERNATIONAL MARKETS ECONOMIC STATISTICS DEVELOPMENT POLICY |
| spellingShingle |
CREDIT MARKETS MONETARY POLICY HOLDING GOVERNMENT EXPENDITURES ECONOMIC GROWTH REAL INTEREST RATES STOCK INTERNATIONAL CREDIT FISCAL DEFICITS DISPOSABLE INCOME INCOME INTEREST GOVERNMENT SPENDING EMERGING ECONOMIES DOMESTIC FINANCIAL MARKETS INTEREST RATE REAL GDP EXCHANGE GOVERNMENT REVENUES INTERNATIONAL BOND MARKET GDP PER CAPITA INTERNATIONAL FINANCIAL MARKETS DEVELOPING COUNTRIES EXPORTS ELASTICITY REAL INTEREST POLITICAL ECONOMY EXPORTERS REVENUES ECONOMIC STRUCTURE PORTFOLIO FISCAL POLICY WELFARE RISK PREMIUM BONDS MIDDLE INCOME COUNTRY LOAN VARIABLES DISCOUNT LOAN AMOUNT CAPITAL CONSTRAINT TAX NON-PERFORMING LOANS RETURNS TO SCALE WEALTH INFLATION INTERNATIONAL BANK TRENDS ECONOMIC OUTLOOK MACROECONOMIC RISK BUDGET FISCAL CONSTRAINTS INTEREST EXPENDITURES ECONOMIC ACTIVITY DEVELOPMENT BOND TRADING FISCAL POLICIES INFLUENCE TRADE BALANCE OIL PRICES TOTAL FACTOR PRODUCTIVITY MARKET DEVELOPMENT DEVELOPMENT ECONOMICS RENT DEBTS INCOME INEQUALITY CONSTANT RETURNS TO SCALE TRADING PRODUCTIVITY INTERNATIONAL BOND INTEREST RATES MONETARY FUND NATURAL DISASTERS NET EXPORTS MARKETS DEBT RETURN DEFICITS INFLATION RATE OPEN ECONOMY LENDERS BUSINESS CYCLE INCOME LEVELS LOANS TAX REVENUES REAL INTEREST RATE ELASTICITY OF SUBSTITUTION UTILITY BORROWING COSTS GROSS DOMESTIC PRODUCT FINANCE ECONOMIC RESEARCH TAXES FIXED EXCHANGE RATE LDCS INVESTMENT DECISIONS EXPENDITURE DEBT LEVELS PRODUCTIVITY GROWTH CONSUMPTION BUDGET CONSTRAINT HUMAN CAPITAL INDUSTRIAL ECONOMIES GOOD CAPITAL WAGES COUNTRY RISK FINANCIAL CRISIS FUTURE VALUE RETURNS CREDIT MACROECONOMICS PERMANENT INCOME GOVERNMENT EXPENDITURE UTILITY FUNCTION INTEREST PAYMENT AGGREGATE DEMAND BOND MARKET WORKING CAPITAL ECONOMIC FLUCTUATIONS GOVERNMENT REVENUE ECONOMY AGRICULTURE EXPENDITURES ELASTICITY OF LABOR SUPPLY PROPERTIES DOMESTIC FINANCIAL MARKET HUMAN CAPITAL DEVELOPMENT MARKET BENCHMARK MACROECONOMIC VARIABLES BUSINESS CYCLES FUNCTIONAL FORMS GOVERNMENT DEBT GOVERNMENT POLICIES TRADE INVESTMENT RATES GDP GOODS ECONOMIES OF SCALE FINANCIAL MARKET GROWTH RATE MACROECONOMIC VOLATILITY INVESTMENT BOND SHARE FINANCIAL MARKETS CAPITAL REQUIREMENT GINI COEFFICIENT REVENUE LEVIES LENDING CONSUMER PRICE INDEX STATISTICAL ANALYSIS CONSUMPTION FUNCTION GDP DEFLATOR REMITTANCES PROFITS INTEREST RATE POLICIES COMMODITY PRICES OPEN ECONOMIES MARGINAL UTILITY MACROECONOMIC PERFORMANCE INTERNATIONAL MARKETS ECONOMIC STATISTICS DEVELOPMENT POLICY Carneiro, Francisco Hnatkovska, Viktoria Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| geographic_facet |
Latin America & Caribbean Caribbean |
| relation |
Policy Research Working Paper;No. 7545 |
| description |
This paper analyzes the business cycle
characteristics of the economies of the Organization of
Eastern Caribbean States using a model of a small open
economy subject to interest rate and fiscal expenditure
shocks and financial frictions. The paper shows that
macroeconomic aggregates in this region are quite volatile,
with consumption exhibiting higher volatility than gross
domestic product. The analysis also finds that in these
economies real interest rates are highly volatile and
strongly countercyclical with gross domestic product and
other macroeconomic aggregates. Similarly, fiscal
expenditures show significant volatility, but are
pro-cyclical with gross domestic product. The results
suggest two major directions for designing policies to help
reduce the volatility experienced by the Organization of
Eastern Caribbean States economies. First, Organization of
Eastern Caribbean States countries should seek a greater
openness to international financial markets, which could
help them smooth out the effects of fundamental shocks, such
as shocks to technology and terms of trade, and shocks
associated with natural hazards. However, this removal of
international financial barriers needs to be accompanied by
improvements in domestic financial conditions, as this would
reduce the vulnerability of these economies to country risk
premium shocks. Second, the Organization of Eastern
Caribbean States region should try harder to move toward a
countercyclical fiscal policy stance, as this could help to
stabilize the domestic risk premium and cushion the negative
effects of interest rate shocks on economic activity, hence
reducing volatility. |
| format |
Working Paper |
| author |
Carneiro, Francisco Hnatkovska, Viktoria |
| author_facet |
Carneiro, Francisco Hnatkovska, Viktoria |
| author_sort |
Carneiro, Francisco |
| title |
Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| title_short |
Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| title_full |
Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| title_fullStr |
Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| title_full_unstemmed |
Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates |
| title_sort |
business cycles in the eastern caribbean economies : the role of fiscal policy and interest rates |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/01/25833246/business-cycles-eastern-caribbean-economies-role-fiscal-policy-interest-rates http://hdl.handle.net/10986/23717 |
| _version_ |
1764454619415576576 |
| spelling |
okr-10986-237172021-04-23T14:04:16Z Business Cycles in the Eastern Caribbean Economies : The Role of Fiscal Policy and Interest Rates Carneiro, Francisco Hnatkovska, Viktoria CREDIT MARKETS MONETARY POLICY HOLDING GOVERNMENT EXPENDITURES ECONOMIC GROWTH REAL INTEREST RATES STOCK INTERNATIONAL CREDIT FISCAL DEFICITS DISPOSABLE INCOME INCOME INTEREST GOVERNMENT SPENDING EMERGING ECONOMIES DOMESTIC FINANCIAL MARKETS INTEREST RATE REAL GDP EXCHANGE GOVERNMENT REVENUES INTERNATIONAL BOND MARKET GDP PER CAPITA INTERNATIONAL FINANCIAL MARKETS DEVELOPING COUNTRIES EXPORTS ELASTICITY REAL INTEREST POLITICAL ECONOMY EXPORTERS REVENUES ECONOMIC STRUCTURE PORTFOLIO FISCAL POLICY WELFARE RISK PREMIUM BONDS MIDDLE INCOME COUNTRY LOAN VARIABLES DISCOUNT LOAN AMOUNT CAPITAL CONSTRAINT TAX NON-PERFORMING LOANS RETURNS TO SCALE WEALTH INFLATION INTERNATIONAL BANK TRENDS ECONOMIC OUTLOOK MACROECONOMIC RISK BUDGET FISCAL CONSTRAINTS INTEREST EXPENDITURES ECONOMIC ACTIVITY DEVELOPMENT BOND TRADING FISCAL POLICIES INFLUENCE TRADE BALANCE OIL PRICES TOTAL FACTOR PRODUCTIVITY MARKET DEVELOPMENT DEVELOPMENT ECONOMICS RENT DEBTS INCOME INEQUALITY CONSTANT RETURNS TO SCALE TRADING PRODUCTIVITY INTERNATIONAL BOND INTEREST RATES MONETARY FUND NATURAL DISASTERS NET EXPORTS MARKETS DEBT RETURN DEFICITS INFLATION RATE OPEN ECONOMY LENDERS BUSINESS CYCLE INCOME LEVELS LOANS TAX REVENUES REAL INTEREST RATE ELASTICITY OF SUBSTITUTION UTILITY BORROWING COSTS GROSS DOMESTIC PRODUCT FINANCE ECONOMIC RESEARCH TAXES FIXED EXCHANGE RATE LDCS INVESTMENT DECISIONS EXPENDITURE DEBT LEVELS PRODUCTIVITY GROWTH CONSUMPTION BUDGET CONSTRAINT HUMAN CAPITAL INDUSTRIAL ECONOMIES GOOD CAPITAL WAGES COUNTRY RISK FINANCIAL CRISIS FUTURE VALUE RETURNS CREDIT MACROECONOMICS PERMANENT INCOME GOVERNMENT EXPENDITURE UTILITY FUNCTION INTEREST PAYMENT AGGREGATE DEMAND BOND MARKET WORKING CAPITAL ECONOMIC FLUCTUATIONS GOVERNMENT REVENUE ECONOMY AGRICULTURE EXPENDITURES ELASTICITY OF LABOR SUPPLY PROPERTIES DOMESTIC FINANCIAL MARKET HUMAN CAPITAL DEVELOPMENT MARKET BENCHMARK MACROECONOMIC VARIABLES BUSINESS CYCLES FUNCTIONAL FORMS GOVERNMENT DEBT GOVERNMENT POLICIES TRADE INVESTMENT RATES GDP GOODS ECONOMIES OF SCALE FINANCIAL MARKET GROWTH RATE MACROECONOMIC VOLATILITY INVESTMENT BOND SHARE FINANCIAL MARKETS CAPITAL REQUIREMENT GINI COEFFICIENT REVENUE LEVIES LENDING CONSUMER PRICE INDEX STATISTICAL ANALYSIS CONSUMPTION FUNCTION GDP DEFLATOR REMITTANCES PROFITS INTEREST RATE POLICIES COMMODITY PRICES OPEN ECONOMIES MARGINAL UTILITY MACROECONOMIC PERFORMANCE INTERNATIONAL MARKETS ECONOMIC STATISTICS DEVELOPMENT POLICY This paper analyzes the business cycle characteristics of the economies of the Organization of Eastern Caribbean States using a model of a small open economy subject to interest rate and fiscal expenditure shocks and financial frictions. The paper shows that macroeconomic aggregates in this region are quite volatile, with consumption exhibiting higher volatility than gross domestic product. The analysis also finds that in these economies real interest rates are highly volatile and strongly countercyclical with gross domestic product and other macroeconomic aggregates. Similarly, fiscal expenditures show significant volatility, but are pro-cyclical with gross domestic product. The results suggest two major directions for designing policies to help reduce the volatility experienced by the Organization of Eastern Caribbean States economies. First, Organization of Eastern Caribbean States countries should seek a greater openness to international financial markets, which could help them smooth out the effects of fundamental shocks, such as shocks to technology and terms of trade, and shocks associated with natural hazards. However, this removal of international financial barriers needs to be accompanied by improvements in domestic financial conditions, as this would reduce the vulnerability of these economies to country risk premium shocks. Second, the Organization of Eastern Caribbean States region should try harder to move toward a countercyclical fiscal policy stance, as this could help to stabilize the domestic risk premium and cushion the negative effects of interest rate shocks on economic activity, hence reducing volatility. 2016-02-02T23:45:49Z 2016-02-02T23:45:49Z 2016-01 Working Paper http://documents.worldbank.org/curated/en/2016/01/25833246/business-cycles-eastern-caribbean-economies-role-fiscal-policy-interest-rates http://hdl.handle.net/10986/23717 English en_US Policy Research Working Paper;No. 7545 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Caribbean |