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Openness, exchange rate regimes and the Phillips curve

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Bowdler, Christopher

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Abstract

Recent research suggests that the Phillips curve slope, measured using sacrifice ratios from the period 1961-88, is positively related to trade openness, contradicting the Romer [1993. Openness and inflation: theory and evidence. Quarterly Journal of Economics 108, 869-903.] hypothesis that disinflations are less costly in open economies. In this paper I consider sacrifice ratios and output-inflation trade-offs from 1981-98 and allow their dependence on openness to vary with the exchange rate regime. Sacrifice ratios are weakly negatively related to openness, but the strength of the relationship does not increase with exchange rate flexibility. Output-inflation trade-offs are negatively related to openness, and the strength of the relationship increases with exchange rate flexibility.

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Publisher Info
Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 1 (February)
Pages: 148-160
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Handle: RePEc:eee:jimfin:v:28:y:2009:i:1:p:148-160

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Web page: http://www.elsevier.com/locate/inca/30443

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Related research
Keywords: Openness Inflation Phillips curve Sacrifice ratio Exchange rate regime;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  2. Frankel, Jeffrey, 1995. "The Stabilizing Properties of a Nominal GNP Rule," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 318-34, May. [Downloadable!] (restricted)
  3. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany. [Downloadable!]
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  4. Jon Faust & John H. Rogers, 1999. "Monetary policy's role in exchange rate behavior," International Finance Discussion Papers 652, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  5. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  7. Boschen, John F. & Weise, Charles L., 2001. "The Ex Ante Credibility of Disinflation Policy and the Cost of Reducing Inflation," Journal of Macroeconomics, Elsevier, vol. 23(3), pages 323-347, July. [Downloadable!] (restricted)
  8. J. McCarthy, 1999. "Pass-through of exchange rates and import prices to domestic inflation in some industrialised economies," BIS Working Papers 79, Bank for International Settlements. [Downloadable!]
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  9. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
  10. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December. [Downloadable!] (restricted)
  11. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  12. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  13. Christopher Bowdler, 2003. "Openness and the Output-Inflation Tradeoff," Economics Papers 2003-W04, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  14. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-30, August.
    Other versions:
  15. repec:rus:hseeco:181565 is not listed on IDEAS
  16. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January. [Downloadable!] (restricted)
  17. Guender, Alfred V. & McCaw, Sharon, 2000. "The inflationary bias in a model of the open economy: a note," Economics Letters, Elsevier, vol. 68(2), pages 173-178, August. [Downloadable!] (restricted)
  18. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joseph P. Daniels & David D. VanHoose, 2007. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Working Papers and Research 0701, Marquette University, Department of Economics. [Downloadable!]
  2. Andrew Pickering & Hector Valle, 2008. "Openness, imported commodities and the Phillips Curve," Bristol Economics Discussion Papers 08/608, Department of Economics, University of Bristol, UK. [Downloadable!]
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