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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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    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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