The Impact of the Foreign Debt Burden on Exchange Market Pressure In Guyana, 1968-2000: An Application of the Error Correction Methodology

Based on annual data spanning the period 1968 to 2000, this paper empirically tests the proposition that growth in Guyana's foreign debt burden contributed to increases in pressure in the country's foreign exchange market. After controlling for other factors that influence changes in foreign reserves and the foreign exchange rate, this study finds, within the context of the co-integration and error correction methodology, a significant relationship between growth in the foreign debt burden and increases in exchange market pressure in Guyana. Other variables that are found to significantly affect exchange market pressure in Guyana are: the changes in domestic credit, the growth in the relative price of crude oil, the growth in exports, the tightness of U.S. monetary policy, and changes in the level of uncertainty in the local economy.