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Openness and Inflation

Cooke, Dudley (2006) Openness and Inflation. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.


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A general equilibrium model of a small open economy is developed to analyse the optimal rate of inflation under discretion. Once agents' welfare is the sole policy objective it is possible to show that openness and inflation no longer have a simple inverse relationship. A greater degree of openness may lead the policy maker to want to exploit the short-run Phillips curve more aggressively, even if involves a smaller short-run benefit, because changes in export demand affect the terms of trade. Inflation can then be higher in a more open economy.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Inflation bias, terms of trade, export demand, small open economy.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 28 Aug 2014 11:58
Last Modified: 28 Aug 2014 11:58

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