Although Caribbean countries have been largely successful in bringing annual inflation down to single digits in recent years-regardless of their exchange rate regime-their growth rates have been disappointing and their public debt has risen rapidly. By 2003, 14 of 15 Caribbean countries ranked...

The “fiscal theory of currency crises” (Daniel 2001; Corsetti and Maćkowiak 2005, 2006) claims that with long-term nominal debt, a government can delay the timing of an inevitable currency crisis that results from a fiscal shock. The present paper shows that, in contrast, long-term nominal debt...