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Openness, Inflation, and the Phillips Curve: A Puzzle

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  • Temple, Jonathan

Abstract

Models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output-inflation trade-off, or Phillips curve. Using a variety of measures of the trade-off and a standard measure of openness, this paper argues that the direct evidence for a correlation is not strong. In turn, this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by Romer (1993). The paper considers some alternative explanations for the Romer evidence.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 34 (2002)
Issue (Month): 2 (May)
Pages: 450-68

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Handle: RePEc:mcb:jmoncb:v:34:y:2002:i:2:p:450-68

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References

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  1. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  3. Thomas Jordan, 1997. "Disinflation costs, accelerating inflation gains, and central bank independence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(1), pages 1-21, March.
  4. Barry, F., 1998. "Openness and the Cost of Relinquishing the Exchange Rate," Papers 98/15, College Dublin, Department of Political Economy-.
  5. Hardouvelis, G.A., 1988. "Monetary Policy Games, Inflationary Bias And Openness," Papers fb-_88-17, Columbia - Graduate School of Business.
  6. MacKinnon, James G. & White, Halbert, 1985. "Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties," Journal of Econometrics, Elsevier, vol. 29(3), pages 305-325, September.
  7. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  8. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, May.
  9. Maria Cristina Terra, 1995. "Openess and inflation: a new assessment," Textos para discussão 339, Department of Economics PUC-Rio (Brazil).
  10. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
  11. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  12. David Romer, 1998. "A New Assessment Of Openness And Inflation: Reply," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 649-652, May.
  13. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  14. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
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