Advanced Search
MyIDEAS: Login to save this paper or follow this series

Capital Mobility and the Output-Inflation Tradeoff

Contents:

Author Info

  • Loungani, Prakash
  • Razin, Assaf
  • Yuen, Chi-Wa

Abstract

A common feature for developing countries that have experienced a sharp drop in inflation without large output losses is the extensive use of capital controls. This study shows that capital controls significantly improve the sacrifice ratio. This element contributes to the explanation of small output losses during disinflations, in addition to the high inflation mean and large nominal output variability in the pre-stabilization phase. A useful concept for disinflation episodes is the sacrifice ratio; the percentage decline in the rate of unemployment with 1% fall in the rate of inflation. The lower this ratio the less painful is disinflation. The new classical approach, pioneered by Lucas (1973), emphasized the variability of nominal GNP growth as a main determinant of the trade-off. The argument is based on the real-nominal confusion of price and output setters, so that agents will be more likely to treat shocks as nominal when the variability of nominal GNP increases. In contrast, the new Keynesian approach, as in Ball, Mankiw and Romer (1988), emphasized the menu costs determinants of the trade-off. That is, in the presence of fixed costs of changing prices, the Phillips curve is expected to be steeper, the higher is the expected rate of inflation, since with higher expected inflation and more frequent price changes, nominal shocks will have smaller real effects.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP1577.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1577.

as in new window
Length:
Date of creation: Mar 1997
Date of revision:
Handle: RePEc:cpr:ceprdp:1577

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: Capital Mobility; Disinflation; Exchange Rate; Mean Inflation; Sacrifice Ratio; Variability of Nominal Income Growth;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Kormendi, Roger C & Meguire, Philip G, 1984. "Cross-Regime Evidence of Macroeconomic Rationality," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 875-908, October.
  2. Leonardo Bartolini & Allan Drazen, 1996. "When Liberal Policies Reflect External Shocks, What Do We Learn?," NBER Working Papers 5727, National Bureau of Economic Research, Inc.
  3. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193 National Bureau of Economic Research, Inc.
  4. DeFina, Robert H, 1991. "International Evidence on a New Keynesian Theory of the Output-Inflation Trade-Off," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 410-22, August.
  5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  6. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, December.
  7. Addison, John T. & Chappell, Henry Jr. & Castro, Alberto C., 1986. "Output-inflation tradeoffs in 34 countries," Journal of Economics and Business, Elsevier, vol. 38(4), pages 353-360, December.
  8. Davide Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
  9. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November.
  10. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
  11. Alberro, Jose, 1981. "The Lucas hypothesis on the Phillips Curve : Further international evidence," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 239-250.
  12. Papell, David H., 1988. "Expectations and exchange rate dynamics after a decade of floating," Journal of International Economics, Elsevier, vol. 25(3-4), pages 303-317, November.
  13. Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
  14. Beggs, John J, 1988. "Diagnostic Testing in Applied Econometrics," The Economic Record, The Economic Society of Australia, vol. 64(185), pages 81-101, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1577. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.