Capital Mobility and the Output-Inflation Tradeoff

Author/Editor:

Assaf Razin ; Prakash Loungani ; Chi-Wa Yuen

Publication Date:

May 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Identifying determinants of the output-inflation tradeoff has long been a key issue in business cycle research. We provide evidence that in countries with greater restrictions on capital mobility, a given reduction in the inflation rate is associated with a smaller loss in output. This result is shown to be consistent with theoretical presumption from a version of the Mundell-Fleming model. Restrictions on capital mobility are measured using the IMF’s Annual Report on Exchange Rate Arrangements and Exchange Restrictions. Estimates of the output-inflation tradeoff are taken from previous studies, viz., Lucas (1973) and Ball, Mankiw and Romer (1988).

Series:

Working Paper No. 2000/087

Subject:

Balance of payments Capital controls Economic theory Foreign exchange Inflation International trade Neoclassical theory Prices Real exchange rates Trade balance

English

Publication Date:

May 1, 2000

ISBN/ISSN:

9781451851014/1018-5941

Stock No:

WPIEA0872000

Pages:

22

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