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Does capital account openness lower inflation?

  • Abhijit Sen Gupta

This paper investigates the relationship between capital account openness and inflation since the 1980s. It argues that widespread capital account liberalization during the last two decades appears to have contributed to the worldwide disinflation observed during the same period. The paper builds a theoretical model to motivate the presence of a negative link between financial integration and inflation. It tests the prediction of the theoretical model by employing static and dynamic panel data procedures. Financial integration appears to discipline monetary authorities, or to help them convince the private sector that they will be more disciplined in the future.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730802497551
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Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 22 (2008)
Issue (Month): 4 ()
Pages: 471-487

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Handle: RePEc:taf:intecj:v:22:y:2008:i:4:p:471-487
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  1. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  2. Christopher F. Baum & John T. Barkoulas & Mustafa Caglayan, 1999. "Persistence in International Inflation Rates," Southern Economic Journal, Southern Economic Association, vol. 65(4), pages 900-913, April.
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  7. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
  8. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Department of Economics, Working Paper Series qt3kj2w649, Department of Economics, UC Santa Cruz.
  9. Manuela Francisco & Michael Bleaney, 2005. "Inflation Persistence and Exchange Rate Regimes: Evidence from Developing Countries," NIPE Working Papers 1/2005, NIPE - Universidade do Minho.
  10. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  11. Ajay Shah & Ila Patnaik, 2007. "India's Experience with Capital Flows: The Elusive Quest for a Sustainable Current Account Deficit," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 609-644 National Bureau of Economic Research, Inc.
  12. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Department of Economics, Working Paper Series qt9h27k0ff, Department of Economics, UC Santa Cruz.
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  14. Kletzer, Kenneth, 2004. "Liberalizing Capital Flows in India: Financial Repression, Macroeconomic Policy and Gradual Reforms," Santa Cruz Center for International Economics, Working Paper Series qt3kj2w649, Center for International Economics, UC Santa Cruz.
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