In this study, we investigate the impacts of hurricane shocks on the international reserves of Caribbean countries. To this end, we use a panel VARX (Vector Auto-Regressive, with exogenous variables) with monthly data that allow us to account for external shocks (hurricane strikes). Our results show that for the whole sample, an increase in foreign reserves a month after the strike was followed by a decrease 2 months later. The increase can be explained by remittances and emergency foreign aid granted by the International Monetary Fund. Dividing the sample into middle-income and high-income countries shows that the increase is mainly due to the latter. This outcome may not be surprising given that production in Caribbean high-income countries is mainly due to manufacturing, off-shore banking and natural resources exploitation, which are all non-weather dependent sectors, while the middle-income countries are mostly dependent on weather-prone agriculture and tourism.
Bibliographical notePublisher Copyright:
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- foreign aid
- international reserves
- Natural disasters
- panel VARX
ASJC Scopus subject areas
- Economics and Econometrics