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Openness And Inflation In The Long Run, David Beheshti, Richarch Evans

Journal of Undergraduate Research

Since the collapse of the Bretton-Woods Agreement in 1973, inflation rates have been steadily decreasing in most of the developed world. At the same time, countries have become increasingly open to international trade (see Figure 1). A possible explanation is that openness to trade and inflation are negatively correlated. This relationship is predicted in a highly-cited theoretical model by economist Kenneth Rogoff (1985) and in most of the previous literature on the subject. However, a more recent theoretical paper (Evans 2012) predicts that countries may engage in inflationary policy in order to tax foreign holders of domestic currency. As countries …