Title

Testing Monetary Policy Intentions In Open Economies

Document Type

Article

Publication Date

1-1-2006

Department

Management and International Business

Abstract

Temple (2002) argues that the inflation level used in Romer (1993) lacks power in revealing the policy intentions of monetary authorities. Temple also points out that Romer's use of the openness-inflation correlation cannot be explained by time consistency theory. In this article, we demonstrate that more open economies experience less inflation volatility and persistence. We attribute our findings to the hypothesis that monetary authorities in more open economies adopt more aggressive monetary policies. This pattern emerges strongly after 1990. Our results indicate that the near-universal regime shift in 1990 is not just a simple process of increased monetary policy aggressiveness, but an increased response to economic openness.

Publication Title

Southern Economic Journal

Volume

72

Issue

3

First Page

730

Last Page

746