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

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    EWPS058.pdf (224.9Kb)
    Date
    2005-08-13
    Author
    Daniels, Joseph P.
    VanHoose, David D.
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    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.
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    http://hdl.handle.net/2104/323
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    • Economics Department: Working Papers Series

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    Copyright © Baylor® University All rights reserved. Legal Disclosures.
    Baylor University Waco, Texas 76798 1-800-BAYLOR-U
    Baylor University Libraries | One Bear Place #97148 | Waco, TX 76798-7148 | 254.710.2112 | Contact: libraryquestions@baylor.edu
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