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Openness and inflation: New empirical panel data evidence

Author

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  • Jafari Samimi, Ahmad
  • Ghaderi, Saman
  • Hosseinzadeh, Ramezan
  • Nademi, Younes

Abstract

The purpose of this paper is to test the hypothesis first documented by Romer (1993), that inflation is lower in more open economies. According to this hypothesis, central banks have a smaller incentive to engineer surprise inflations in economies that are more open because the Phillips curve is steeper. In this paper, the panel data technique has been employed to examine the aforementioned hypothesis concerning the developed and developing countries over the last two decades. Also, comparing with other empirical studies, this paper has estimated the relationship between economic globalization as one dimension of the new KOF globalization index and inflation. The paper’s results cast substantial doubts on the conventional view that suggests a robust and negative relationship between trade openness and inflation. The estimation result regarding the traditional measure of trade openness indicates a positive and significant association between trade openness and inflation which opposes the view of the Romer (1993) hypothesis. In contrast, the estimation results regarding a new economic globalization index (the KOF index) suggest that higher economic globalization will decrease inflation, as supported by the Romer (1993) hypothesis for both developed and developing countries during 1990–9 and 2000–9. Thus, it seems that the new economic globalization measure (the KOF index), which is a broader comprehensive index, is a better proxy for openness.

Suggested Citation

  • Jafari Samimi, Ahmad & Ghaderi, Saman & Hosseinzadeh, Ramezan & Nademi, Younes, 2012. "Openness and inflation: New empirical panel data evidence," Economics Letters, Elsevier, vol. 117(3), pages 573-577.
  • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:573-577
    DOI: 10.1016/j.econlet.2012.07.028
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kaitlyn R. Wolf & Andrew T. Young, 2014. "Globalization and Income Convergence," Working Papers 14-07, Department of Economics, West Virginia University.
    2. repec:eee:poleco:v:52:y:2018:i:c:p:18-35 is not listed on IDEAS
    3. Aliyev, Khatai & Gasimov, Ilkin, 2014. "Openness-Inflation Nexus in South Caucasus Economies," MPRA Paper 62761, University Library of Munich, Germany.
    4. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.
    5. Jac C. Heckelman & Andrew T. Young, 2014. "How Global is Globalization?," Working Papers 14-08, Department of Economics, West Virginia University.
    6. Salahodjaev, Raufhon & Azam, Sardor, 2015. "Intelligence and gender (in)equality: empirical evidence from developing countries," MPRA Paper 66295, University Library of Munich, Germany.
    7. HAMI Mahyar, 2014. "Inflation And Openness: Empirical Evidences From Iran (1965-2010)," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(2), pages 27-32, August.

    More about this item

    Keywords

    Openness; Inflation; Economic globalization; Developed and developing countries; Panel data;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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