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Is openness inflationary? Policy commitment and imperfect competition

  • Evans, Richard W.

This paper proposes a channel through which increased openness to international trade can increase a country’s long-run incentive to create inflation. The theoretical justification for this channel is the well known “beggar thy neighbor” incentive, and its dominance relies on a monetary authority’s ability to commit to policy as well as the asymmetric effects of the underlying frictions in the model across domestic and foreign households. Consistent with previous work, the model predicts that the inflationary bias of openness is dampened by the degree of imperfect competition within a country.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 4 ()
Pages: 1095-1110

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:1095-1110
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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