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: Suggested Citation
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