FINANCIAL GLOBALIZATION AND INFLATION IN DEVELOPING COUNTRIES: A REAPPRAISAL

William Miles

Applied Econometrics and International Development, 2011, vol. 11, issue 1

Abstract: A number of economists have stated, and two recent empirical studies have suggested, that financial globalization should exert a positive effect on macroeconomic outcomes in general and inflation in particular. We re-examine the impact of such openness on inflation by exploiting a recent index of capital controls which improves on previous binary measures. In addition, we include one key variable missing from the previous studies-money growth. We find, as did the previous studies, that in the absence of money growth financial (and trade) openness appear to lower inflation. However, once previous money growth is taken into account, financial (and even a proxy for trade) openness exerts no significant effect at all on inflation.

Keywords: Capital Account; Inflation (search for similar items in EconPapers)
JEL-codes: E31 F2 O11 (search for similar items in EconPapers)
Date: 2011
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