Financial Openness and Inflation: Recent Evidence 

Alfred Guender and Hamish McHugh-Smith

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In a model comprising a bank and goods-producing firm, this paper advances the hypothesis that financial openness should be inversely related to the rate of inflation. Our empirical analysis reveals a strong and robust inverse link between financial openness and CPI inflation in over 100 countries over the 1997-2016 period, adding weight to the argument that inflation in financially open economies is indeed lower. This result obtains for OECD countries as well as non-OECD countries. Trade openness in contrast bears no systematic relationship to inflation.

Keywords: Financial Openness; Trade Openness; Inflation; Bank Loans; Deposits; Nominal Price Rigidity (search for similar items in EconPapers)
JEL-codes: E3 E5 F3 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-int and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-02

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