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Financial Openness and Inflation: An Empirical Analysis

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Abstract

Our empirical analysis reveals a strong systematic inverse link between financial openness and CPI inflation in over 100 countries, adding weight to the argument that inflation in financially open economies is lower. Trade openness in contrast bears no systematic relationship to inflation.

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  • Alfred V. Guender & Hamish McHugh-Smith, 2020. "Financial Openness and Inflation: An Empirical Analysis," Working Papers in Economics 20/18, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:20/18
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    File URL: https://repec.canterbury.ac.nz/cbt/econwp/2018.pdf
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    1. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, Oxford University Press, vol. 134(2), pages 599-646.
    2. Richard T. Froyen & Alfred V. Guender, 2017. "What to Aim for? The Choice of an Inflation Objective when Openness Matters," Open Economies Review, Springer, vol. 28(1), pages 167-190, February.
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    6. Olivier Blanchard, 2021. "Currency Wars, Coordination, and Capital Controls," World Scientific Book Chapters, in: Steven J Davis & Edward S Robinson & Bernard Yeung (ed.), THE ASIAN MONETARY POLICY FORUM Insights for Central Banking, chapter 4, pages 134-157, World Scientific Publishing Co. Pte. Ltd..
    7. Davis, J. Scott & Presno, Ignacio, 2017. "Capital controls and monetary policy autonomy in a small open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 114-130.
    8. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    9. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
    10. Richard T. Froyen & Alfred V Guender, 2016. "The Real Exchange Rate in Open-Economy Taylor Rules: A Re-Assessment," Working Papers in Economics 16/10, University of Canterbury, Department of Economics and Finance.
    11. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
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    More about this item

    Keywords

    Financial Openness; Trade Openness; Inflation; Capital Controls;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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