Exchange-Rate Pass Through, Openness, Inflation, and the Sacrifice Ratio
Considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation-output trade-off and realized inflation rates. In this paper, we utilize cross-country data to provide evidence of interacting effects between a greater extent of exchange-rate pass through and openness to international trade as factors that we find both contribute to lower inflation. The interplay between the inflation effects of pass through and openness suggest that both factors may influence the terms of the output-inflation trade-off. We develop a simple theoretical model showing how both pass through and openness can interact to influence the sacrifice ratio, and we empirically explore the nature of the interplay between the two variables as factors influencing the sacrifice ratio. Our results indicate that a greater extent of pass through depresses the sacrifice ratio and that once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio, the degree of openness to international trade exerts an empirically ambiguous effect on the sacrifice ratio.
|Date of creation:||Sep 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 288-7377
Web page: http://www.busamd.mu.edu/Economics/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:mrq:wpaper:0901. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joseph P. Daniels)
If references are entirely missing, you can add them using this form.