Abstract
Barbados has traditionally used fiscal policy to maintain the exchange rate peg of $2 BBD to $1 USD through foreign reserve stability. The use of fiscal policy is premised on the assumption of complete openness of the capital account, which would disallow the use of independent monetary policy. However, evidence shows that the Barbados capital account is closed, implying that independent monetary policy is useful. This paper compares the effectiveness of monetary and fiscal policy in maintaining reserve stability.