Monetary policy in Haiti: 1991-2019

Abstract

This study reviews the potential impact of monetary policy changes in Haiti for a twenty-eight year period (1991-2019). During that time, the country faced an increasing degree of dollarization, a result of recurrent balance of payment problems present in the economy since the 1980s. In 1991 the financial sector received the green light to accept dollar deposits and to provide loans in foreign currency. In 2008, the monetary policy started to implement easy monetary measures, which were aimed to induce growth, to increase credit in the domestic currency and to curb the "dollar addiction" of Haitian economic agents. The study applies the counterfactual analysis method as the methodology to provide a quantitative assessment of this new policy impact on growth and credit conditions. To do so, two periods were identified, the pre-policy period, i.e.,1991-2007 and the implementation period, i.e., 2008-2019. The policy variable was the interest rate on 91-days maturity period's bonds. Two ARDL (Autoregressive Distributed Lag) equations with trend were estimated for the first period, one with industrial production -a proxy for growth- as an outcome, the other with credit to the private sector (in gourdes) by commercial banks. A set of control variables, invariant to the policy changes but which affect the outcome variables, was also included. The observed outcome, which resulted from the policy implementation, was compared to an unobservable outcome generated from the estimation of the first period ARDL, this for each equation. This comparison was conducted through a test of effectiveness. The results of the test show that, on average, the easy policy did not bring significant changes to the economy as measured by industrial production and credit during the period studied. This does not preclude the policy from having an effect at specific times. One line of explanation behind these results lies in the observed increase of Haitian economic agents' "dollar addiction", something that the easy policy framework was unable to dampen. Another line of explanation builds on the structure of the financial sector, a risk adverse sector which did not alter its lending habits when the Central Bank adopted the easy policy framework at first and then, in 2014, adjusted its focus to some specific sectors identified as "growth enhancing" sectors.