Interest rate determination in developing countries
Troy Lorde, Brian Francis, Kimberly Waithe and Timothy G. Taylor
Savings and Development Vol. 32(2008), No. 1, pp. 31-50
This paper seeks to determine nominal interest rates in five small developing countries - The Bahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago. The traditional Fisher equation augmented with the US nominal interest rate is employed. Results indicate the existence of a long-run relationship for The Bahamas, Jamaica (when the country’s exchange rate is floating), and Trinidad and Tobago. The Bahamian nominal interest rate moves one-for-one with the US interest rate, while for the others, the movement is greater than one-for-one. Fisher’s relation does not appear to be a suitable framework for determination of nominal interest rates in Barbados and Guyana.
Issue: 2008 XXXII 1Contributors: Francis, Brian Lorde, Troy Taylor, Timothy G. Waithe, Kimberly
Keywords: Developing countries, Fisher’s hypothesis, Interest rates