Exchange-Rate Regimes and Inflation: An Empirical Evaluation

Working Papers in International Economics and Finance 2014-02

18 Pages Posted: 24 Feb 2014

See all articles by Simon Sosvilla-Rivero

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

María del Carmen Ramos-Herrera

Universidad Complutense de Madrid (UCM)

Date Written: February 6, 2014

Abstract

Based on a dataset of 123 economies, both developed and developing countries, this paper investigates the relation between exchange-rate regimes and consumer price index (CPI) inflation performance. Our results suggest that those countries with flexible exchange-rate regimes are characterized by higher CPI inflation rates, while the smaller CPI inflation rates are associated with fixed exchange rates and countries with intermediate regimes occupy an intermediate position in their records of CPI inflation rates. These findings are maintained when we analyze the countries using the World Bank’s classification of income level (low income, lower middle income, upper middle income and high income), except for the case of upper income countries, where we do not find significant differences between fixed and intermediate regimes in CPI inflation performance. Our results suggest that the highest CPI inflation rates are associated with lower middle income countries with flexible exchange rates, while the lowest CPI inflation rates are present in high income countries with fixed exchange rate regimes.

Keywords: Exchange rate regime, CPI inflation rate

JEL Classification: E42, F31

Suggested Citation

Sosvilla-Rivero, Simon and Ramos-Herrera, María del Carmen, Exchange-Rate Regimes and Inflation: An Empirical Evaluation (February 6, 2014). Working Papers in International Economics and Finance 2014-02. Available at SSRN: https://ssrn.com/abstract=2400007 or http://dx.doi.org/10.2139/ssrn.2400007

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

María del Carmen Ramos-Herrera

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

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