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Openness and Inflation

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  • DUDLEY COOKE
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    Abstract

    This paper develops a two-country general equilibrium model to analyze the optimal rate of inflation under discretion. When agents' welfare is the sole policy objective it is possible to show that openness and inflation no longer have a simple inverse relationship. Because the terms of trade are related to monopoly markups, a greater degree of openness may lead the policymaker to exploit the short-run Phillips curve more aggressively, even if it involves a smaller short-run benefit. Inflation can then be higher in a more open economy. Copyright (c) 2010 The Ohio State University.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2009.00287.x
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    Bibliographic Info

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

    Volume (Year): 42 (2010)
    Issue (Month): 2-3 (03)
    Pages: 267-287

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    Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:2-3:p:267-287

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

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    Cited by:
    1. Igor Da Silva Veiga & Helder Ferreira De Mendonça, 2014. "Financial Openness And Inflationtargeting: An Analysis For The Unpleasant Fiscal Arithmetic," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 059, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Laura Povoledo, 2013. "Modelling the sectoral allocation of labour in open economy models," Working Papers 20131312, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    3. Jafari Samimi, Ahmad & Ghaderi, Saman & Hosseinzadeh, Ramezan & Nademi, Younes, 2012. "Openness and inflation: New empirical panel data evidence," Economics Letters, Elsevier, vol. 117(3), pages 573-577.

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