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Research Summary
Research Summary
  • Research Summary

Inflation, Openness, and Exchange-Rate Regimes. The Quest for Short-Term Commitment

By: Laura Alfaro
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    Description

    This paper further tests Romers (1993) extension of Kydland and Prescotts (1977) predictions on dynamic-inconsistency problems with regard to open economies. In a panel data set, I find that openness does not seem to play a role in the short run in restricting inflation, but a fixed exchange-rate regime plays a significant role. This result is robust to the use Reinhart and Rogoffs (2002) exchange rate regime classification. If the openness-inflation relationship arises from the dynamic inconsistency of discretionary monetary policy, the relationship is weaker in countries with fixed exchange-rate regimes.

    Inflation, Openness, and Exchange-Rate Regimes

    Laura Alfaro

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