Testing Monetary Policy Intentions In Open Economies
Management and International Business
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.
Southern Economic Journal
Wong, M. S.
(2006). Testing Monetary Policy Intentions In Open Economies. Southern Economic Journal, 72(3), 730-746.
Available at: http://aquila.usm.edu/fac_pubs/2550