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Inflation persistence and exchange rate regime: implications for dynamic adjustment to shocks in a small open economy

Abstract:

The paper examines implications of ination persistence for business cycle dynamics following terms of trade shock in a small oil producing economy, under ination targeting and exchange rate targeting regimes. It is shown that due to the 'Walters critique' effect, the country's adjustment paths are slow and cyclical if there is a signicant backward-looking element in the inflation dynamics and the exchange rate isfixed. It is also shown that such cyclical adjustment paths are moderated if ther...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
OxCarre Papers
Publication date:
2011-11-29
Paper number:
63
Keywords:
Pubs id:
1143853
Local pid:
pubs:1143853
Deposit date:
2020-12-15

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