Interest Rate Determination in Small Developing Countries

Troy Lorde, Brian Francis, Kimberly Waithe and Timothy Taylor

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the validity of Fisher’s hypothesis in determining nominal interest rates for five small developing countries—The Bahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago. We augment the traditional Fisher test equation by introducing the US nominal interest rate. Results indicate that there is a long run relationship for The Bahamas and Trinidad and Tobago; and for Jamaica during the period when the country is under a floating exchange regime. The nominal interest rate in each of the latter countries is positively related to the US nominal rate. Specifically, in The Bahamas the relationship is one-for-one, and for the others it is greater than one-for-one. Expected inflation only has an effect in Jamaica and Trinidad and Tobago, although the relationship is negative in the case of the latter. Fisher’s hypothesis, even in its augmented form, does not appear to be a suitable framework for determination of nominal interest rates for Barbados and Guyana.

Keywords: interest rates; developing countries; Fisher’s hypothesis, monetary policy (search for similar items in EconPapers)
JEL-codes: C22 C52 E43 E52 F41 O54 (search for similar items in EconPapers)
Date: 2008-01-27
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Savings and Development 1.32(2008): pp. 31-50

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/95621/1/MPRA_paper_95621.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:95621

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter (winter@lmu.de).