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Openness and the Output-Inflation Tradeoff

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Abstract

Standard open economy models predict that openness to trade should exert a positive effect on the slope of the output-inflation tradeoff, or Phillips curve, but such a proposition finds very little support in the existing empirical literature. We propose a new test of this hypothesis based on new measures of the slope of the Phillips curve and more general cross-country regression models. The results provide strong empirical support for the standard theoretical prediction.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/2003/W4/OpenOIT.pdf
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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2003-W04.

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Length: 28 pages
Date of creation: 20 Feb 2003
Date of revision:
Handle: RePEc:nuf:econwp:0304

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Web page: http://www.nuff.ox.ac.uk/economics/

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Keywords: Openness; Inflation; Phillips curve;

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References

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  1. David Romer, 1998. "A New Assessment Of Openness And Inflation: Reply," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 649-652, May.
  2. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November.
  3. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
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  14. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
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  17. Maria Cristina Terra, 1995. "Openess and inflation: a new assessment," Textos para discussão 339, Department of Economics PUC-Rio (Brazil).
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  19. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
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  23. Janine Aron & John Muellbauer, 2000. "Inflation and output forecasts for South Africa: monetary transmission implications," CSAE Working Paper Series 2000-23, Centre for the Study of African Economies, University of Oxford.
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  25. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
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Citations

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Cited by:
  1. Bowdler, Christopher, 2009. "Openness, exchange rate regimes and the Phillips curve," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 148-160, February.
  2. William C. Gruben & Darryl McLeod, 2003. "The openness-inflation puzzle revisited," Center for Latin America Working Papers 0203, Federal Reserve Bank of Dallas.
  3. Christopher Bowdler, 2005. "Openness, exchange rate regimes and the Phillips curve," Economics Series Working Papers 2005-W25, University of Oxford, Department of Economics.
  4. Adolfo Sachsida & Mário Jorge Cardoso de Mendonça, 2006. "Inflation and Trade Openness Revised: an Analysis Using Panel Data," Discussion Papers 1148, Instituto de Pesquisa Econômica Aplicada - IPEA.

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