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International transmission of anticipated inflation under alternative exchange-rate regimes

  • Holman, Jill A.
  • Rioja, Felix K.

This paper studies the international transmission of anticipated inflation. A two-country, two-good, two-currency, cash-in-advance model is used to examine analytically and numerically the consequences of changes in a country's inflation rate. Domestic monetary policy influences real activity at home through an inflation-tax channel. These real effects are transmitted to the foreign country via fluctuations in the real exchange rate. Under a flexible nominal exchange rate, inflation is a beggar-thy-neighbor policy. Under a fixed nominal exchange rate, each country suffers a welfare loss when one country inflates. The quantitative results are fairly insensitive to variations in the cash-credit mix used to finance investment expenditures.

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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 20 (2001)
Issue (Month): 4 (August)
Pages: 497-519

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Handle: RePEc:eee:jimfin:v:20:y:2001:i:4:p:497-519
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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