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How do openness and exchange-rate regimes affect inflation?

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  • Ghosh, Amit

Abstract

A key issue in monetary policymaking is the time inconsistency problem confronting central banks. The impact of openness on inflation enables testing this rule versus discretion debate. This study examines the effect of openness and exchange rate regimes on inflation for 137 countries from 1999 to 2012. Using both de jure and de facto measures, I find higher capital account openness as well as a movement towards a fixed regime to lower inflation. However, there is no clear evidence of a significant negative effect of trade openness on inflation, except for nations with low trade openness and high inflation rates.

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  • Ghosh, Amit, 2014. "How do openness and exchange-rate regimes affect inflation?," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 190-202.
    • Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:190-202
    DOI: 10.1016/j.iref.2014.08.008
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    More about this item

    Keywords

    Capital controls; Exchange rate regimes; Inflation; Monetary policy; Trade openness;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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