Capital Mobility and the Output-Inflation Tradeoff

By Assaf Razin, Prakash Loungani, Chi-Wa Yuen

May 1, 2000

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Assaf Razin, Prakash Loungani, and Chi-Wa Yuen. Capital Mobility and the Output-Inflation Tradeoff, (USA: International Monetary Fund, 2000) accessed September 20, 2024

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).

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

Keywords: Africa, Aggregate demand elasticity, Capital controls, Capital immobility, Capital mobility, Immobility case, Inflation, Mobility regime, Neoclassical theory, Openness, Output-inflation tradeoff, Phillips curve, Price level, Real exchange rates, Trade balance, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/087
Stock No:

WPIEA0872000
ISBN:

9781451851014
ISSN:

1018-5941

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