EXCHANGE RATE MISALIGNMENT IN SELECTED CARIBBEAN COUNTRIES

This paper investigates whether the real effective exchange rates (REER) for Barbados, Jamaica and Trinidad over the period 1970-2001 are over or undervalued. A long run cointegrating regression of the REER and five fundamental variables is estimated, and the degree of over or undervaluation is obtained by comparing the actual REER to the equilibrium REER value. The paper finds that the actual REER for Barbados and Jamaica are currently above the equilibrium REER, while Trinidad and Tobago's REER is below the level it would have been in equilibrium.