The Openness-Inflation Puzzle

Posted: 6 Nov 1998

See all articles by Jonathan R.W. Temple

Jonathan R.W. Temple

Centre for Economic Policy Research (CEPR)

Date Written: August 27, 1998

Abstract

Recent papers have documented a robust negative correlation between openness to trade and average inflation. The usual argument is that openness makes the Phillips curve steeper, leading to a lower rate of inflation in equilibrium. The relationship between openness and inflation is then seen as evidence in favor of time consistency theories of monetary policy. However, in this note I show that standard measures of the output-inflation trade-off are not correlated with openness. Hence the usual argument is almost certainly wrong, and the observed link between openness and inflation becomes an interesting puzzle.

JEL Classification: E31, F41

Suggested Citation

Temple, Jonathan R.W., The Openness-Inflation Puzzle (August 27, 1998). Available at SSRN: https://ssrn.com/abstract=121258

Jonathan R.W. Temple (Contact Author)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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