| Journal of Development Economics
Inflation, Openness, and Exchange Rate Regimes: The Quest for Short-Term Commitment
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: Forecasting and Prediction;
Currency Exchange Rate;
Developing Countries and Economies;
Inflation and Deflation;