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Openness-inflation Nexus in alternative monetary regimes

  • Pei-Chien Lin , Ho-Chuan Huang und Xiaojian Liu EMAIL logo
Veröffentlicht/Copyright: 4. Dezember 2020
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Studies in Nonlinear Dynamics & Econometrics
Aus der Zeitschrift Studies in Nonlinear Dynamics & Econometrics Band 26 Heft 1

Abstract

By applying an endogenous switching regression model to a sample of 64 countries, this article explores whether the effect of trade openness on inflation is influenced by the adoption of inflation targeting (IT). The outcome indicates that, while there exists a significant and negative impact of trade openness on inflation in the non-IT countries with flexible exchange rate system, the effect is negligible in the IT economies. In addition, the above differential inflation effect of trade openness across IT and non-IT regimes is only present in the developing subsample with flexible exchange rate system, but not the developed counterpart. Moreover, apart from trade openness, financial openness reinforces inflation in those developing countries not adopting IT, whereas no such significant effect is found in developing countries adopting IT. Instead of inflation, further results show that trade openness lowers inflation volatility both in developing and developed countries not adopting IT, yet the impact is smaller in developed country group. However, no such statistically significant link is found in developing and developed countries that adopt IT.

Keywords: endogenous switching regression model; financial openness; inflation; inflation targeting; inflation volatility; trade openness
JEL Classication: F41; E31; E42; C30
Corresponding author: Xiaojian Liu, College of Finance and Statistics, Hunan University, Changsha 410079, China, E-mail:

Funding source: Ministry of Science and Technology (MOST, Taiwan, ROC)

Award Identifier / Grant number: MOST 104-2410-H-032-002

Acknowledgements

We thank the very constructive comments and suggestions from an anonymous referee. Any remaining errors are our own responsibility.

  1. Author contribution: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.

  2. Research funding: The first author gracefully acknowledges financial support from the Ministry of Science and Technology (MOST, Taiwan, ROC) via grant number MOST 104-2410-H-032-002.

  3. Conflict of interest statement: The authors declare no conflicts of interest.

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Supplementary Material

The online version of this article offers supplementary material (https://doi.org/10.1515/snde-2018-0052).

Received: 2018-06-03
Accepted: 2020-11-18
Published Online: 2020-12-04

© 2020 Walter de Gruyter GmbH, Berlin/Boston

Artikel in diesem Heft

  1. Frontmatter
  2. Research Articles
  3. Testing constant cross-sectional dependence with time-varying marginal distributions in parametric models
  4. Bayesian inference for unit root in smooth transition autoregressive models and its application to OECD countries
  5. Openness-inflation Nexus in alternative monetary regimes
  6. Bayesian bandwidth estimation for local linear fitting in nonparametric regression models
  7. Are multifractal processes suited to forecasting electricity price volatility? Evidence from Australian intraday data
  8. Choosing between identification schemes in noisy-news models
  9. Hysteresis and sources of aggregate employment inertia
  10. Asymmetric dynamics between uncertainty and unemployment flows in the United States
https://doi.org/10.1515/snde-2018-0052
Schlagwörter für diesen Artikel
endogenous switching regression model; financial openness; inflation; inflation targeting; inflation volatility; trade openness

Artikel in diesem Heft

  1. Frontmatter
  2. Research Articles
  3. Testing constant cross-sectional dependence with time-varying marginal distributions in parametric models
  4. Bayesian inference for unit root in smooth transition autoregressive models and its application to OECD countries
  5. Openness-inflation Nexus in alternative monetary regimes
  6. Bayesian bandwidth estimation for local linear fitting in nonparametric regression models
  7. Are multifractal processes suited to forecasting electricity price volatility? Evidence from Australian intraday data
  8. Choosing between identification schemes in noisy-news models
  9. Hysteresis and sources of aggregate employment inertia
  10. Asymmetric dynamics between uncertainty and unemployment flows in the United States
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