Nominal Exchange Rate Shocks and Inflation in an Open Economy: Towards a Structuralist Inflation Targeting Agenda
55 Pages Posted: 8 Jun 2017
Date Written: May 2017
This paper develops a model of inflation in an open economy. The model permits analysis of the susceptibility of open economies to permanent inflationary consequences arising from transitory foreign exchange shocks. Sources of structural vulnerability to such events are identified, and means of addressing these structural vulnerabilities are discussed. Ultimately, the paper arrives at a “structuralist inflation targeting agenda”. Based on a proper conception of inflation dynamics, this involves “getting inflation targeting right” rather than either accepting mainstream inflation targeting prescriptions or simply neglecting inflation altogether.
Keywords: inflation, strato-inflation, nominal exchange rate shocks, conflicting claims, hysteresis, capital controls, industrial policy
JEL Classification: E12, E31, F31, F41
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