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REVISITING THE ROMER’S HYPOTHESIS: Time Series Evidence from Small Open Economy

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  • Ihtisham ul HAQ,*
  • Mohammed Saud M. ALOTAISH,*
  • Naradda Gamage Sisira KUMARA,*
  • Shavkat OTAMURODOV*

Abstract

Considerably more commodities are available to consumers in open economies and openness brings these at cheaper rate, according to Romer’s hypothesis. The Johansen cointegration technique nullified Romer’s hypothesis that greater openness brings less inflation. Economic growth had significant positive impact on inflation, which is according to realm of Phillips curve and Okun’s law. Supply of money was also documented by positive effect on inflation, as the classical neutrality of money reveals. This study recommended that Sri Lankan government should be very careful in policies regarding supply of money and openness as it hurts consumers.

Suggested Citation

  • Ihtisham ul HAQ,* & Mohammed Saud M. ALOTAISH,* & Naradda Gamage Sisira KUMARA,* & Shavkat OTAMURODOV*, 2014. "REVISITING THE ROMER’S HYPOTHESIS: Time Series Evidence from Small Open Economy," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 24(1), pages 1-15.
    • Handle: RePEc:pje:journl:article14sumi
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    References listed on IDEAS

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    1. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 869-903.
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    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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    Cited by:

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    3. Alimi, R. Santos & Olorunfemi, Sola, 2018. "Does Inflation Uncertainty Matter for Validity of Romer’s Hypothesis? Evidence from Nigeria," MPRA Paper 90948, University Library of Munich, Germany.

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