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International Financial Issues in the Pacific RimGlobal Imbalances, Financial Liberalization, and Exchange Rate Policy$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2008

Print ISBN-13: 9780226386829

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387086.001.0001

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The Relationship between Openness and Inflation in NIEs and the G7

The Relationship between Openness and Inflation in NIEs and the G7

Chapter:
(p.109) 4 The Relationship between Openness and Inflation in NIEs and the G7
Source:
International Financial Issues in the Pacific Rim
Author(s):
Chung-Shu Wu, Jin-Lung Lin
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226387086.003.0005

Investigating a sample of 114 countries, Romer (1993) found a significant negative relationship between openness and inflation. This chapter investigates newly industrialized economies (NIEs) and the G7 to verify the robustness of Romer's findings. The empirical results show that openness and inflation do not have a regular relationship as stated by Romer (1993). The chapter is organized as follows. Section 4.2 describes the historical patterns of openness and inflation of NIEs and the G7. Section 4.3 investigates the relationship between openness and inflation using annual panel data. Section 4.4 presents the empirical results of a time series approach to the relationship for each individual country. Section 4.5 adopts a VAR analysis to examine the impacts of money supply on output in order to check the corollary of Romer's model (1993), and Section 4.6 concludes.

Keywords:   openness, inflation, newly industrialized economies, G7, VAR analysis, money supply, output

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