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Does Capital Account Openness Lower Inflation?

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  • Abhijit Sen Gupta

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Abstract

This paper investigates the relationship between capital account openness and inflation since the 1980s. It argues that widespread capital account liberalization during the last two decades appears to have contributed to the worldwide disinflation observed during the same period. The paper builds a theoretical model to motivate the presence of a negative link between financial integration and inflation. It tests the prediction of the theoretical model by employing static and dynamic panel data procedures. Financial integration appears to discipline monetary authorities, or to help them convince the private sector that they will be more disciplined in the future. [ICRIER Working Paper 191]

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:843.

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Date of creation: Feb 2007
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Handle: RePEc:ess:wpaper:id:843

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Keywords: capital account openness; inflation; seignorage; discipline effect; Economics; International Economic Relations;

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References

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  1. repec:ebl:ecbull:v:6:y:2005:i:2:p:1-15 is not listed on IDEAS
  2. Leonardo Bartolini & Allan Drazen, 1996. "Capital Account Liberalization as a Signal," NBER Working Papers 5725, National Bureau of Economic Research, Inc.
  3. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 353-98, September.
  4. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
  5. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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  24. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Department of Economics, Working Paper Series qt3kj2w649, Department of Economics, UC Santa Cruz.
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Cited by:
  1. Lekshmi Nair, 2012. "Policy Disciplining Effect of Capital Account Openness in India," Transition Studies Review, Springer, Springer, vol. 19(1), pages 43-57, September.
  2. 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], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Grad 059, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  3. Chakraborty, Debashis & Mukherjee, Jaydeep & Sinha, Tanaya, 2010. "The Structural Relationship between Current and Capital Account Balance in India: A Time Series Analysis," MPRA Paper 22806, University Library of Munich, Germany.
  4. Abhijit Sen Gupta, 2010. "Management of International Capital Flows: The Indian Experience," Competence Centre on Money, Trade, Finance and Development, Hochschule fuer Technik und Wirtschaft, Berlin 1003, Hochschule fuer Technik und Wirtschaft, Berlin.

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