Abstract
Inflation is recurrent and relatively strong in Haiti, a small Caribbean open economy plagued by debilitating factors including sluggish economic growth and low saving rates. The inflation process is fed by a permanent monetary expansion, consistent with standard theory. The monetary effect is also amplified by other factors such as inertia, price-setting behavior in the stagnating economy, and by the effects of relative price changes, particularly the pass-through of exchange rate changes on the consumer price index (CPI). The chapter investigates the effects—and their strength—on the dynamics of inflation in Haiti with some conventional econometric methods using quarterly data from different sources including the central bank from 1996 to 2018. It also analyzes the strength and the stability of this dynamics—and quite complex—relationship. Finally, it brings out how the monetary policy impacts their relationship, and the impediments that prevent the monetary policy framework from being effective in stabilizing inflation in Haiti.
I would like to thank Henry Robert Dubois, Carl-Henri Prophète, Claude Jacques Divers and Gihanne Ambroise for their comments. The views in this paper are the author’s ones and not those of the Bank of Republic of Haiti (BRH).
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Notes
- 1.
The government launched many projects including a Fishing Project (SPIA), an edible oil Project SODEXOL and a Sugar Plant Darbonne.
- 2.
In the law of August 17th, 1979, creating the central bank of Haiti, the Bank of Republic of Haiti (BRH), the articles 41, 43, and 45 clearly express that the central bank can lend to the government. However, such advances may not exceed 20% of the amount of the tax revenue collected during the previous year. In addition, they must be repaid within 180 days.
- 3.
In 2018, the private credit-deposit ratio was 39%. In terms of GDP, private credit accounted only for 16.5%.
- 4.
The authorities indicated to commercial banks their intention to raise the surrender requirement on export receipts from 50 to 75% in order to increase in resources channeled to the Central Bank and make it possible to support higher imports of essential commodities at the official rate, and contain price increases (IMF Staff Report for the Haiti Article IV Consultation, 1989, p.17).
- 5.
The opposite situation has occurred regarding the dollarization of portfolios. It has reduced, coming from 53% before 2010 to less than 41% afterwards, as a result of administrative and policy measures by the central bank, which have increased the cost of lending US dollar.
- 6.
In 1993, the Central bank decided to remunerate the excess banks’ reserves for better liquidity management. A decision lasted less than 6 months (Bank of Republic of Haiti—Annual Report, 1993, p.49).
- 7.
According to the World Bank database, the annual inflation rate in Venezuela averaged almost 80% from 2010 to 2016 (October 2019).
- 8.
World Bank database: October 2019.
- 9.
Many competent Haitian-American professionals were given incentives by international technical and financial partners to come back and take part in the implementation of that program, called Camdessus-Preval Initiative (Buss, 2009).
- 10.
It is the most popular method used in many countries is the exclusion method, which simply excludes a fixed, pre-specified list of volatile CPI components (typically food and energy items) whose short-term behavior tends to diverge from that of the underlying price trend (Guinigundo, 2004, p. 38).
- 11.
The Haiti collecting data agency (IHSI) changed this feature in the beginning of 2019 by introducing a new CPI using the 2012 comprehensive Household Consumption Budget Survey (EBCM-2012). Compared to the former index, the new is now a linear combination of the locally produced goods price index and the imported goods prices index while all three are based on the fiscal year 2017–2018. It’s one of the main changes occurred within the new CPI along with having 12 groups instead of 8.
- 12.
The Metropolitan Area represents Port-au-Prince (the Capital) and its surrounding areas.
- 13.
The reasons for increased exchange rate volatility are discussed in IMF (1999).
- 14.
Oil prices subsidies have been effective from 1999 to 2003 and from 2011 to 2017 although prohibited as intended in the March 1995 law.
- 15.
Indirect quotation.
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Appendix
Appendix
See Tables 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13 and 7.14.
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Pierre, Y.N. (2022). Exchange Rate and Inflation Dynamics, and Monetary Policy in Haiti. In: Cannonier, C., Galloway Burke, M. (eds) Contemporary Issues Within Caribbean Economies. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-98865-4_7
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