Inflation, Openness, and Exchange-Rate-Regimes

Posted: 5 Apr 2004

Abstract

This paper further tests Romer's (1993) extension of Kydland and Prescott's (1977) predictions for dynamic-inconsistency problems in open economies. In a panel data set of developed and developing countries from 1973 to 1998, I find that openness does not play a role in restricting inflation in the short-run. On the other hand, a fixed exchange-rate regime plays a significant role. The results are robust to controlling for other variables that determine inflation, performing sensitivity analysis, and using a de facto exchange-rate regime classification.

Keywords: Credibility, commitment mechanisms, exchange-rate regimes, inflation, openness

JEL Classification: E31, F31, F41

Suggested Citation

Alfaro, Laura, Inflation, Openness, and Exchange-Rate-Regimes. Journal of Development Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=524922

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States