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REVISITING THE ROMER’S HYPOTHESIS: Time Series Evidence from Small Open Economy

Author

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  • Ihtisham ul HAQ,*
  • Mohammed Saud M. ALOTAISH,*
  • Naradda Gamage Sisira KUMARA,*
  • Shavkat OTAMURODOV*

Abstract

Considerably more commodities are available to consumers in open economies and openness brings these at cheaper rate, according to Romer’s hypothesis. The Johansen cointegration technique nullified Romer’s hypothesis that greater openness brings less inflation. Economic growth had significant positive impact on inflation, which is according to realm of Phillips curve and Okun’s law. Supply of money was also documented by positive effect on inflation, as the classical neutrality of money reveals. This study recommended that Sri Lankan government should be very careful in policies regarding supply of money and openness as it hurts consumers.

Suggested Citation

  • Ihtisham ul HAQ,* & Mohammed Saud M. ALOTAISH,* & Naradda Gamage Sisira KUMARA,* & Shavkat OTAMURODOV*, 2014. "REVISITING THE ROMER’S HYPOTHESIS: Time Series Evidence from Small Open Economy," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 24(1), pages 1-15.
    • Handle: RePEc:pje:journl:article14sumi
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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    6. Sachsida, Adolfo & Carneiro, Francisco Galrao & Loureiro, Paulo R. A., 2003. "Does greater trade openness reduce inflation? Further evidence using panel data techniques," Economics Letters, Elsevier, vol. 81(3), pages 315-319, December.
    7. Richard W. Evans, 2007. "Is openness inflationary? Imperfect competition and monetary market power," Globalization Institute Working Papers 01, Federal Reserve Bank of Dallas.
    8. Yutaka Kurihara, 2013. "International Trade Openness and Inflation in Asia," Research in World Economy, Research in World Economy, Sciedu Press, vol. 4(1), pages 70-75, March.
    9. Alfaro, Laura, 2005. "Inflation, openness, and exchange-rate regimes: The quest for short-term commitment," Journal of Development Economics, Elsevier, vol. 77(1), pages 229-249, June.
    10. Tahir Mukhtar, 2010. "Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(2), pages 35-50, Jul-Dec.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

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    3. Alimi, R. Santos & Olorunfemi, Sola, 2018. "Does Inflation Uncertainty Matter for Validity of Romer’s Hypothesis? Evidence from Nigeria," MPRA Paper 90948, University Library of Munich, Germany.

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