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A multi-country comparison of the linkages between inflation and exchange rate competitiveness

  • Steven B. Kamin

    (Federal Reserve Board, Washington, DC, USA)

  • Marc Klau

    (Bank for International Settlements, Basel, Switzerland)

This paper compares the response of inflation to changes in exchange rate competitiveness in various regions of the world. The paper first presents evidence that an empirical relationship between the rate of inflation and the level of the real exchange rate holds for a large set of countries. It then demonstrates that the responsiveness of inflation to the real exchange rate has been much higher in Latin America than in Asian or industrialized countries. This difference in inflationary responsiveness is not fully explained either by the prior history of inflation or by the extent of openness to foreign trade. Copyright © 2003 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 2 ()
Pages: 167-184

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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:2:p:167-184
DOI: 10.1002/ijfe.205
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  1. Takatoshi Ito & Peter Isard & Steven Symansky, 1997. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Papers 5979, National Bureau of Economic Research, Inc.
  2. Jose De Gregorio & Alberto Giovannini & Holger C. Wolf, 1993. "International Evidence on Tradables and Nontradables Inflation," Working Papers 93-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  4. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 869-903.
  5. Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
  6. Kamin, Steven B., 2001. "Real exchange rates and inflation in exchange-rate-based stabilizations: an empirical examination," Journal of Development Economics, Elsevier, vol. 64(1), pages 237-253, February.
  7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  8. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
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