Does Capital Account Openness Lower Inflation?
AbstractThis 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.
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Bibliographic InfoPaper provided by Indian Council for Research on International Economic Relations, New Delhi, India in its series Indian Council for Research on International Economic Relations, New Delhi Working Papers with number 191.
Length: 32 Pages
Date of creation: Jan 2007
Date of revision:
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Capital Account Openness; Inflation; Seignorage; Discipline Effect;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-24 (All new papers)
- NEP-MAC-2007-03-24 (Macroeconomics)
- NEP-MON-2007-03-24 (Monetary Economics)
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