Monetary Independence under Floating Exchange Rates: Evidence Based on International Breakeven Inflation Rates
It is widely assumed that, under flexible foreign exchange (FX) rates, countries may pursue an independent monetary policy with respect to domestic goals. By contrast, recent empirical evidence suggests that, similar to pegs, floating regimes are affected by transmissions of nominal quantities such as inflation or nominal interest rates from abroad. For the case of a four dimensional subsystem of the G7, we highlight the strength of international comovements in liquidity adjusted breakeven inflation interpreted as a measure of future inflation prospects. Results indicate that economies with geographical proximity and strong trade linkages (e.g. Canada and the U.S., the UK and EMU) share highest realized correlations of nonstationary breakeven rates. Moreover, these linkages appear strengthened if corresponding exchange rates are relatively stable or if the respective large economy is in a state of relatively uncertain inflation expectations.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 13 (2009)
Issue (Month): 4 (September)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/snde|
When requesting a correction, please mention this item's handle: RePEc:bpj:sndecm:v:13:y:2009:i:4:n:5. 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: (Peter Golla)
If references are entirely missing, you can add them using this form.