Openness, the Sacrifice Ratio, and Inflation: Is there a Puzzle?

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Show simple item record Daniels, Joseph P. VanHoose, David D. January 8, 2003, Revised May 24, 2004
dc.description.abstract The standard time-inconsistency-based explanation for the negative correlation between openness and inflation requires an inverse relationship between the sacrifice ratio and openness, but Daniels et al. (forthcoming) have provided evidence that controlling for central bank independence reveals a positive relationship. This paper embeds the time-inconsistency approach within a model of a multisector, imperfectly competitive, open economy. In this setting, greater openness raises the sacrifice ratio but reduces the inflation bias. Thus, failure to observe an inverse relationship between openness and the sacrifice ratio does not necessarily imply that the time-inconsistency approach is irrelevant to understanding the openness-inflation relationship. en
dc.relation.ispartofseries BaylorBusiness Economics: Working Papers Series en
dc.relation.ispartofseries 2005-058-ECO en
dc.subject Open Economy Macroeconomics en
dc.subject JEL Classification: F41 en
dc.title Openness, the Sacrifice Ratio, and Inflation: Is there a Puzzle? en
dc.type Working Paper en

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