Working Paper Series: Special Edition of 2016 to 2018 Interns

arrangements relative to those with a fixed regime. . This uncertainty allows for volatility in consumption and investment expectations and this will lead to less developed institutions, aimed at propelling growth and fostering development. The paper therefore explores the hypothesis that remittances will have a greater impact on economic growth in economies with a fixed exchange rate regime. The paper is organized in the following manner. Section 2 will give a brief overview of the exchange rate regimes that exist in Latin America and the Caribbean. Section 3 will review existing literatures, both theoretically and empirically. Section 4 will focus on research variables, data description and the econometric models employed in the paper. Section 5 gives an analysis of the results and section 6 provides the concluding remarks. 2. Exchange Rate Regimes in Latin America and the Caribbean Three frameworks prevail in Latin America and the Caribbean. They are listed below while the country specific regimes are stated and defined in (See Appendix Table 1 ): 1. USD anchor specified framework; where the US dollar is the ‘focus currency’ when making monetary and inflationary decisions. 2. Fixed/Managed Exchange Rate policy framework; this occurs when the monetary authority buys or sell foreign exchange to maintain the exchange rate at its predetermined level or within a range. 3. Inflation-targeting framework ; involves the public announcement of numerical targets for inflation, with an institutional commitment by the monetary authority to achieve these targets, typically over a medium-term horizon. In addition to these frameworks, there are myriad of de facto exchange rate regimes being employed by countries in Latin America and the Caribbean which in turns have implications for how monetary shocks impact the economies and also how they are transmitted through the economy. Table 1 (See Appendix) outlines the main regimes for the countries included in the study.

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