A monetary union for selected Caribbean countries: empirical evidence based on time varying parameters

This paper examines the case for a monetary union in selected Caribbean countries. We examine two scenarios: the enlargement of the Eastern Caribbean Monetary Union and the formation of a new union, centered on Trinidad and Tobago. The Kalman Filter is applied to derive time varying estimates for the degree of convergence of shocks that measure the extent to which Caribbean economies are synchronized. Based on the findings, there is no support for either scenario and we recommend the strengthening and deepening of intra-regional trade and institutional arrangements as the precursor to establishing a single CARICOM currency in the Caribbean.