The Relationship between Openness and Inflation in NIEs and the G7
The Relationship between Openness and Inflation in NIEs and the G7
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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