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Financial Liberalization and the Dynamics of Inflation, Nominal Exchange Rate, and Terms of Trade

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  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

The paper develops a short-run structural model of a small open financially repressed economy with current account convertibility. The analysis shows that the effect of financial liberalization on rate of inflation and the movements of the nominal exchange rate proves ambiguous, and hinges critically on the relative responsiveness of the credit-induced effects on aggregate demand and aggregate supply. This result provides a theoretical explanation to the widely available empirical evidence, indicating such an ambiguity.

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Bibliographic Info

Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

Volume (Year): 42 (2007)
Issue (Month): 2 (December)
Pages: 165-176

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Handle: RePEc:dse:indecr:v:42:y:2007:i:2:p:165-176

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Related research

Keywords: Financial Liberalization; Inflation; exchange rate and terms of trade dynamics; Small open economy.;

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