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Openness, exchange rate regimes and the Phillips curve

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  • Bowdler, Christopher

Abstract

Recent research suggests that the Phillips curve slope, measured using sacrifice ratios from the period 1961-88, is positively related to trade openness, contradicting the Romer [1993. Openness and inflation: theory and evidence. Quarterly Journal of Economics 108, 869-903.] hypothesis that disinflations are less costly in open economies. In this paper I consider sacrifice ratios and output-inflation trade-offs from 1981-98 and allow their dependence on openness to vary with the exchange rate regime. Sacrifice ratios are weakly negatively related to openness, but the strength of the relationship does not increase with exchange rate flexibility. Output-inflation trade-offs are negatively related to openness, and the strength of the relationship increases with exchange rate flexibility.

Suggested Citation

  • Bowdler, Christopher, 2009. "Openness, exchange rate regimes and the Phillips curve," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 148-160, February.
  • Handle: RePEc:eee:jimfin:v:28:y:2009:i:1:p:148-160
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    Citations

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    Cited by:

    1. Joseph Daniels & Sandeep Mazumder & David VanHoose, 2015. "Implications of Globalization for the Output-inflation Relationship: an Assessment," Open Economies Review, Springer, vol. 26(1), pages 39-60, February.
    2. Jose De Gregorio, 2007. "Defining Inflation Targets, the Policy Horizon and the Output-Inflation Tradeoff," Working Papers Central Bank of Chile 415, Central Bank of Chile.
    3. Mazumder, Sandeep, 2014. "Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries," Economic Modelling, Elsevier, vol. 40(C), pages 117-135.
    4. Harald Badinger & Elisabeth Nindl, 2012. "Sacrifice Ratios, Benefice Ratios, and Globalization: Evidence from a New Set of Estimates," Economics Bulletin, AccessEcon, vol. 32(1), pages 421-428.
    5. Watson, Anna, 2016. "Trade openness and inflation: The role of real and nominal price rigidities," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 137-169.
    6. Daniels, Joseph P. & VanHoose, David D., 2013. "Exchange-rate pass through, openness, and the sacrifice ratio," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 131-150.
    7. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
    8. Badinger, Harald, 2009. "Globalization, the output-inflation tradeoff and inflation," European Economic Review, Elsevier, vol. 53(8), pages 888-907, November.
    9. Andrea Vaona, 2015. "The price-price Phillips curve in small open economies and monetary unions: theory and empirics," International Economics and Economic Policy, Springer, vol. 12(2), pages 281-307, June.
    10. Andrew Pickering & Hector Valle, 2008. "Openness, imported commodities and the Phillips Curve," Bristol Economics Discussion Papers 08/608, Department of Economics, University of Bristol, UK.
    11. Mazumder, Sandeep, 2014. "The sacrifice ratio and core inflation," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 400-421.
    12. Bowdler, Christopher & Nunziata, Luca, 2010. "Labor market structures and the sacrifice ratio," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 816-826, September.
    13. Cavelaars, Paul, 2009. "Does globalisation discipline monetary policymakers?," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 392-405, April.

    More about this item

    Keywords

    Openness Inflation Phillips curve Sacrifice ratio Exchange rate regime;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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