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A multi-country comparison of the linkages between inflation and exchange rate competitiveness

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Author Info

  • Steven B. Kamin

    (Federal Reserve Board, Washington, DC, USA)

  • Marc Klau

    (Bank for International Settlements, Basel, Switzerland)

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    Abstract

    This paper compares the response of inflation to changes in exchange rate competitiveness in various regions of the world. The paper first presents evidence that an empirical relationship between the rate of inflation and the level of the real exchange rate holds for a large set of countries. It then demonstrates that the responsiveness of inflation to the real exchange rate has been much higher in Latin America than in Asian or industrialized countries. This difference in inflationary responsiveness is not fully explained either by the prior history of inflation or by the extent of openness to foreign trade. Copyright © 2003 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.205
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 8 (2003)
    Issue (Month): 2 ()
    Pages: 167-184

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    Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:2:p:167-184

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    References

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    1. Kenneth A. Froot & Kenneth Rogoff, 1996. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
    2. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
    3. Kamin, Steven B., 2001. "Real exchange rates and inflation in exchange-rate-based stabilizations: an empirical examination," Journal of Development Economics, Elsevier, vol. 64(1), pages 237-253, February.
    4. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1996. "Relative Labour Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," CEPR Discussion Papers 1464, C.E.P.R. Discussion Papers.
    6. Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
    7. Takatoshi Ito & Peter Isard & Steven Symansky, 1997. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Papers 5979, National Bureau of Economic Research, Inc.
    8. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    Cited by:
    1. Adeniji, Sesan, 2013. "Exchange Rate Volatility and Inflation Upturn in Nigeria: Testing for Vector Error Correction Model," MPRA Paper 52062, University Library of Munich, Germany.
    2. Victor Pontines & Reza Siregar, 2012. "Episodes of Large Exchange Rate Appreciations and Reserves Accumulations in Selected Asian Economies: Is Fear of Appreciation Justified?," CAMA Working Papers 2012-31, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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