Empirical Assessment of Monetary Policy Stance around Selected Sovereign Domestic Debt Restructurings

Abstract

Domestic debt restructurings (DDRs) are monetary events as much as fiscal ones, yet the monetary policy stance around them has not been measured directly. This paper estimates—for Jamaica (2010), Ghana (2022–24), and Barbados (2018–19)—how far each central bank departed from its own implicit reaction function around the exchange, using a regime-appropriate measure in each case. Four findings hold across different regimes. First, no central bank was passive: in each case the largest departure in the sample, or close to it, falls inside the restructuring episode. Second, what each did was governed by its regime rather than by a common disposition—the two floating rate cases ran looser than their rules implied, while Barbados, defending a peg with a few weeks of import cover, withdrew financing from the government. Third, the departure attaches to the announcement rather than to the execution of the exchange, and it does not persist: the more tightly constrained the central bank, the shorter it proves. Finally, using a money multiplier equation, the study finds no evidence that any of the three exchanges impaired monetary transmission. Three recommendations for DDR design and monitoring follow.