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Testing Monetary Policy Intentions in Open Economies

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  • Jim Granato
  • Melody Lo
  • M. C. Sunny Wong

Abstract

Temple (2002) argues that the inflation level used in Romer (1993) lacks power in revealing the policy intentions of monetary authorities, Temple also points out that Romer's use of the openness‐inflation correlation cannot be explained by time consistency theory. In this article, we demonstrate that more open economies experience less inflation volatility and persislence. We attribute our findings to the hypothesis that monetary authorities in more open economies adopt more aggressive monetary policies. This pattern emerges strongly after 1990. Our results indicate that the near‐universal regime shift in 1990 is not just a simple process of increased monetary policy aggressiveness, but an increased response to economic openness.

Suggested Citation

  • Jim Granato & Melody Lo & M. C. Sunny Wong, 2006. "Testing Monetary Policy Intentions in Open Economies," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 730-746, January.
    • Handle: RePEc:wly:soecon:v:72:y:2006:i:3:p:730-746
    DOI: 10.1002/j.2325-8012.2006.tb00731.x
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    1. Taniya Ghosh & Yadavindu Ajit, 2023. "Central bank transparency, the role of institutions and inflation persistence," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2023-012, Indira Gandhi Institute of Development Research, Mumbai, India.

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