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Openness, Inflation, and the Phillips Curve: A Puzzle
- Journal of Money, Credit, and Banking
- The Ohio State University Press
- Volume 34, Number 2, May 2002
- pp. 450-468
- 10.1353/mcb.2002.0049
- Article
- Additional Information
Models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output-inflation trade-off, or Phillips curve. Using a variety of measures of the trade-off and a standard measure of openness, this paper argues that the direct evidence for a correlation is not strong. In turn, this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by Romer (1993). The paper considers some alternative explanations for the Romer evidence.