This paper empirically investigates international and domestic monetary policy
transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess
interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving
deposit rate (MSR) into domestic interest rates through the interest rate channel. While
economic theory suggests that the international pass-through should be high in small open
economies with fixed exchange rates and open capital accounts, our findings, based on
regression analysis, point to a low long-run pass-through coefficient of the U.S. interest
rate. The domestic transmission channel, however, is found to operate through changes in
the MSR. The results hold for different interest rates (deposit and lending) and are
supported by survey-based findings.
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