A Multi-Country Comparison of the Linkages between Inflation and Exchange Rate Competitivenes

Posted: 3 Jul 1998

See all articles by Steven B. Kamin

Steven B. Kamin

Board of Governors of the Federal Reserve System

Date Written: February 1998

Abstract

This paper describes research comparing the response of inflation to changes in exchange rate competitiveness in various regions of the world. The paper first presents evidence that an empirical relationship between the rate of inflation and the level of the real exchange rate, which was documented for Mexico in previous research by the author, holds for a large set of other countries as well. This result may pose a dilemma for policy-makers, since it implies that it may not be possible to achieve low inflation and a high export competitiveness simultaneously. The paper then demonstrates that the responsiveness of inflation to the real exchange rate has been much higher in Latin America than in Asian or industrialized countries. This difference in inflationary responsiveness is not fully explained either by the prior history of inflation or by the extent of openness to foreign trade. It is possible that the lower responsiveness of inflation to the real exchange rate in Asia than in Latin America is what has allowed the Asian countries to remain more consistently focused on maintaining competitiveness and export growth.

JEL Classification: E31, E41

Suggested Citation

Kamin, Steven B., A Multi-Country Comparison of the Linkages between Inflation and Exchange Rate Competitivenes (February 1998). FRB International Finance Discussion Paper No. 603. Available at SSRN: https://ssrn.com/abstract=104048

Steven B. Kamin (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-3339 (Phone)
202-736-5638 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
705
PlumX Metrics