A discussion paper released in January 2022 by Bank of Jamaica (BOJ) is contending that the Jamaican dollar depreciates when there is heightened risk perception in the world even more than other factors.

The paper, entitled “Identifying the External and Internal Drivers of Exchange Rate Volatility in Small Open Economies: Evidence from Jamaica,” written by Uluc Aysun of the University of Central Florida, continues the discussion on capital controls in the Caribbean.

 

It examines exchange rate movements in Jamaica, the United States and the G-7 countries. Setting the context, the writer noted that there has been a resurgence of capital controls following the 2008 global financial crisis not only in the developing world but also in some advanced economies.

 

Aysun asserted, “While these controls aim to protect economies from large exchange rate fluctuations, they are also known to impose long-run structural costs that could more than offset any potential short-run benefits. It is, therefore, critical to determine whether capital controls are fully justified.”

 

Framing his discussion, the writer stated, “From a policy perspective, if the main source of exchange rate volatility is external to a country, capital controls could be the only comprehensive tool available to mitigate the damaging effects of this volatility. If, by contrast, domestic shocks are the main drivers of exchange rates, prudent policies could ensure stability while avoiding the costs of blunt tools such as capital controls.”

https://www.jamaicaobserver.com/business-observer/j-vulnerable-to-global-factors_245209