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Openness and the Output-Inflation Tradeoff

Standard open economy models predict that openness to trade should exert a positive effect on the slope of the output-inflation tradeoff, or Phillips curve, but such a proposition finds very little support in the existing empirical literature. We propose a new test of this hypothesis based on new measures of the slope of the Phillips curve and more general cross-country regression models. The results provide strong empirical support for the standard theoretical prediction.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/2003/W4/OpenOIT.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2003-W04.

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Length: 28 pages
Date of creation: 20 Feb 2003
Date of revision:
Handle: RePEc:nuf:econwp:0304
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  11. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  12. Laurence Ball, 2000. "Near-Rationality and Inflation in Two Monetary Regimes," Economics Working Paper Archive 435, The Johns Hopkins University,Department of Economics.
  13. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
  14. Hutchison, M M & Walsh, C E, 1998. "The Output-Inflation Tradeoff and Central Bank Reform: Evidence from New Zealand," Economic Journal, Royal Economic Society, vol. 108(448), pages 703-25, May.
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