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Trade Openness, Capital Mobility, and the Sacrifice Ratio

  • Joseph Daniels

    ()

  • David VanHoose

    ()

This paper develops and evaluates empirically the implications of a theoretical model of an open economy in which variations in both trade openness and capital mobility can influence the sacrifice ratio. Key predictions forthcoming from the model are that both forms of globalization can independently affect the capital ratio, once the influences of the level of central bank independence and the degree of wage stickiness in nations‘ economies are taken into account. Examination of cross-country data encompassing 58 disinflations for 16 countries yields evidence consistent with these essential predictions of the theoretical framework.

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File URL: http://hdl.handle.net/10.1007/s11079-008-9093-5
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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 20 (2009)
Issue (Month): 4 (September)
Pages: 473-487

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Handle: RePEc:kap:openec:v:20:y:2009:i:4:p:473-487
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100323

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  1. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports 324, Federal Reserve Bank of New York.
  2. Loungani, Prakash & Razin, Assaf & Yuen, Chi-Wa, 1997. "Capital Mobility and the Output-Inflation Tradeoff," CEPR Discussion Papers 1577, C.E.P.R. Discussion Papers.
  3. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
  4. Duca, John V. & Van Hoose, David D., 2001. "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 1-29, January.
  5. Cristina T. Terra, 1998. "Openness And Inflation: A New Assessment," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 641-648, May.
  6. Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
  7. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  8. Joshua Aizenman & Ilan Noy, 2009. "Endogenous Financial and Trade Openness," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 175-189, 05.
  9. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 265-305.
  10. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
  11. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  12. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
  13. Daniels, Joseph, 1997. "Optimal sterilization policies in interdependent economies," Journal of Economics and Business, Elsevier, vol. 49(1), pages 43-60, February.
  14. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  15. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, June.
  16. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
  17. Assaf Razin & Prakash Loungani, 2005. "Globalization and Equilibrium Inflation-Output Tradeoffs," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 171-192 National Bureau of Economic Research, Inc.
  18. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
  19. John V. Duca & David D. VanHoose, 2000. "Has Greater Competition Restrained U.S. Inflation?," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 729=741, January.
  20. Christopher Bowdler, 2005. "Openness, exchange rate regimes and the Phillips curve," Economics Papers 2005-W25, Economics Group, Nuffield College, University of Oxford.
  21. Duca, John V, 1987. "The Spillover Effects of Nominal Wage Rigidity in a Multisector Economy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 117-21, February.
  22. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  23. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  24. M. F. Bleaney, 1999. "The Disappearing Openness-Inflation Relationship; A Cross-Country Analysis of Inflation Rates," IMF Working Papers 99/161, International Monetary Fund.
  25. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
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