IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Openness and inflation: New empirical panel data evidence

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

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.

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.sciencedirect.com/science/article/pii/S0165176512004223
Download Restriction: Full text for ScienceDirect subscribers only

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.

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 3 ()
Pages: 573-577

as
in new window

Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:573-577
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  2. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
  3. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  4. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
  5. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  6. Richard W. Evans, 2007. "Is openness inflationary? Imperfect competition and monetary market power," Globalization and Monetary Policy Institute Working Paper 01, Federal Reserve Bank of Dallas.
  7. Cristina T. Terra, 1998. "Openness And Inflation: A New Assessment," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 641-648, May.
  8. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  9. Hanif, Muhammad N. & Batool, Irem, 2006. "Openness and Inflation: A Case Study of Pakistan," MPRA Paper 10214, University Library of Munich, Germany.
  10. Kirkpatrick, C H & Nixson, F I, 1977. " Inflation and "Openness" in Less Developed Economies: A Cross-Country Analysis: Comment," Economic Development and Cultural Change, University of Chicago Press, vol. 26(1), pages 147-52, October.
  11. Jafari Samimi, Ahmad & Ghaderi, Saman & Sanginabadi, Bahram, 2011. "Openness and Inflation in Iran," MPRA Paper 52408, University Library of Munich, Germany.
  12. Alfaro, Laura, 2005. "Inflation, openness, and exchange-rate regimes: The quest for short-term commitment," Journal of Development Economics, Elsevier, vol. 77(1), pages 229-249, June.
  13. Jim Granato & Melody Lo & M. C. Sunny Wong, 2007. "A note on Romer's openness-inflation relation: the responsiveness of AS and AD to economic openness and monetary policy," Applied Economics, Taylor & Francis Journals, vol. 39(2), pages 191-197.
  14. Iyoha, Milton Ame, 1973. "Inflation and "Openness" in Less Developed Economies: A Cross-Country Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 22(1), pages 31-38, October.
  15. Tahir Mukhtar, 2010. "Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(2), pages 35-50, Jul-Dec.
  16. Dudley Cooke, 2010. "Openness and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 267-287, 03.
  17. World Bank, 2011. "World Development Indicators 2011," World Bank Publications, The World Bank, number 2315.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:573-577. 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: (Zhang, Lei)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.