Openness and Inflation

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Openness and Inflation

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Dudley Cooke ()

Abstract

A general equilibrium model of a small open economy is developed to analyze the optimal rate of inflation under discretion. Once agents' welfare is the sole policy objective it is possible to show that openness and inflation no longer have a simple inverse relationship. A greater degree of openness may lead the policy maker to want to exploit the short-run Phillips curve more aggressively, even if involves a smaller short-run benefit, because changes in export demand affect the terms of trade. Inflation can then be higher in a more open economy.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 621.

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Date of creation: 25 Oct 2006
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Handle: RePEc:esx:essedp:621

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Paper
- Dudley Cooke, 2004. "Openness and Inflation," Money Macro and Finance (MMF) Research Group Conference 2004 99, Money Macro and Finance Research Group. [Downloadable!]
- Dudley Cooke, 2004. "Openness And Inflation," Royal Economic Society Annual Conference 2004 44, Royal Economic Society. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-11-04 (All new papers)
NEP-CBA-2006-11-04 (Central Banking)
NEP-MAC-2006-11-04 (Macroeconomics)
NEP-MON-2006-11-04 (Monetary Economics)

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