Is openness inflationary? Policy commitment and imperfect competition

Richard Evans

Journal of Macroeconomics, 2012, vol. 34, issue 4, 1095-1110

Abstract: This paper proposes a channel through which increased openness to international trade can increase a country’s long-run incentive to create inflation. The theoretical justification for this channel is the well known “beggar thy neighbor” incentive, and its dominance relies on a monetary authority’s ability to commit to policy as well as the asymmetric effects of the underlying frictions in the model across domestic and foreign households. Consistent with previous work, the model predicts that the inflationary bias of openness is dampened by the degree of imperfect competition within a country.

Keywords: Optimal monetary policy; Imperfect competition; International monetary policy; Openness (search for similar items in EconPapers)
JEL-codes: E52 E61 F41 F42 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:4:p:1095-1110

DOI: 10.1016/j.jmacro.2012.05.002

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