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

Openness and inflaton volatility: Cross-country evidence

Contents:

Author Info

  • Christopher Bowdler
  • Adeel Malik
Registered author(s):

    Abstract

    Recent decades have seen a considerable expansion of global trade and a simultaneous decline in inflation volatility. This paper investigates whether greater openness to trade helps achieve inflation stability. Using panel data for a sample of developing and industrial countries over the period 1961-2000, we document a negative and statistically significant effect of openness on inflation volatility. This relationship is estimated after controlling for the potential endogeneity of openness, and the average rate of inflation. We conduct a battery of robustness tests, showing in particular the robustness of our conclusions to controlling for the choice of exchange rate regime. A sub-sample analysis suggests that the relationship between openness and inflation volatility is more pronounced in developing and emerging market economies than in OECD countries. We also identify potential channels underpinning this relationship. In particular, we provide evidence that openness may promote inflation stability through dampening monetary and terms of trade shocks.

    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.nuff.ox.ac.uk/economics/papers/2005/w14/Maydraft2.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2005-W14.

    as in new window
    Length:
    Date of creation: 01 May 2005
    Date of revision:
    Handle: RePEc:oxf:wpaper:2005-w14

    Contact details of provider:
    Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Email:
    Web page: http://www.economics.ox.ac.uk/
    More information through EDIRC

    Related research

    Keywords: Openness; Inflation; Globalization; Volatility; Panel Data;

    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. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2004. "Financial Globalization, Growth and Volatility in Developing Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4772, C.E.P.R. Discussion Papers.
    2. Bleaney, Michael & Fielding, David, 2002. "Exchange rate regimes, inflation and output volatility in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 68(1), pages 233-245, June.
    3. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
    4. Fatás, Antonio & Mihov, Ilian & Rose, Andrew K, 2004. "Quantitative Goals for Monetary Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4445, C.E.P.R. Discussion Papers.
    5. Lal, Deepak & Myint, H., 1998. "The Political Economy of Poverty, Equity and Growth: A Comparative Study," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198294320, October.
    6. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 22(2), pages 187-231, June.
    7. Ari Aisen & Francisco José Veiga, 2005. "The Political Economy of Seigniorage," NIPE Working Papers, NIPE - Universidade do Minho 12/2005, NIPE - Universidade do Minho.
    8. Byrne, Joseph P. & Davis, E. Philip, 2004. "Permanent and temporary inflation uncertainty and investment in the United States," Economics Letters, Elsevier, Elsevier, vol. 85(2), pages 271-277, November.
    9. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers, Trinity College Dublin, Department of Economics 200211, Trinity College Dublin, Department of Economics.
    10. Marianne Baxter & Michael A. Kouparitsas, 2006. "What Can Account for Fluctuations in the Terms of Trade?," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 9(1), pages 63-86, 05.
    11. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2004. "Competition, Globalization and the Decline of Inflation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4695, C.E.P.R. Discussion Papers.
    12. Beck, T.H.L., 2002. "Financial development and international trade: Is there a Link?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125515, Tilburg University.
    13. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(3), pages 529-554, April.
    14. Maria Cristina Terra, 1995. "Openess and inflation: a new assessment," Textos para discussão, Department of Economics PUC-Rio (Brazil) 339, Department of Economics PUC-Rio (Brazil).
    15. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
    16. Sachsida, Adolfo & Carneiro, Francisco Galrao & Loureiro, Paulo R. A., 2003. "Does greater trade openness reduce inflation? Further evidence using panel data techniques," Economics Letters, Elsevier, Elsevier, vol. 81(3), pages 315-319, December.
    17. Ari Aisen & Francisco José Veiga, 2005. "Does Political Instability Lead to Higher Inflation? A+L2990 Panel Data Analysis," IMF Working Papers 05/49, International Monetary Fund.
    18. Jim Granato & Melody Lo & M. C. Sunny Wong, 2006. "Testing Monetary Policy Intentions in Open Economies," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 730-746, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    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:oxf:wpaper:2005-w14. 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: (Caroline Wise).

    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.