IDEAS home Printed from https://ideas.repec.org/a/taf/jitecd/v35y2026i5p1185-1222.html

Financial vs. trade openness: Where openness matters for CPI inflation and where it doesn’t

Author

Listed:
  • Alfred V. Guender
  • Hamish McHugh-Smith

Abstract

This paper identifies a distinct financial channel through which openness affects inflation in a simple model of a bank and a goods-producing firm. Greater financial openness leads to lower inflation if it is cheaper for the bank to borrow abroad than at home. This hypothesis is tested on cross-section data in a sample of 75 countries over the 1973–2016 period. While there is no robust evidence for lower CPI inflation in financially more open economies in all the countries studied, we do find such an inverse link in a subsample comprising OECD countries only. By contrast, the more common measure of openness, trade openness, matters only in non-OECD countries where greater trade openness is negatively related to CPI inflation.

Suggested Citation

  • Alfred V. Guender & Hamish McHugh-Smith, 2026. "Financial vs. trade openness: Where openness matters for CPI inflation and where it doesn’t," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 35(5), pages 1185-1222, July.
    • Handle: RePEc:taf:jitecd:v:35:y:2026:i:5:p:1185-1222
    DOI: 10.1080/09638199.2026.2681578
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09638199.2026.2681578
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09638199.2026.2681578?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:35:y:2026:i:5:p:1185-1222. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RJTE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.