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Financial Liberalization and Inflationary Dynamics: An Open Economy Analysis

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  • Rangan Gupta
Abstract
This paper analyzes the effects of financial liberalization on inflation. We develop an open economy monetary endogenous growth general equilibrium model, with financial intermediaries subjected to obligatory 'high' reserve ratio, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, which typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates.

Suggested Citation

  • Rangan Gupta, 2007. "Financial Liberalization and Inflationary Dynamics: An Open Economy Analysis," International Economic Journal, Taylor & Francis Journals, vol. 21(3), pages 335-360.
    • Handle: RePEc:taf:intecj:v:21:y:2007:i:3:p:335-360
    DOI: 10.1080/10168730701541228
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    References listed on IDEAS

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    1. Wyplosz, Charles, 1999. "Financial Restraints and Liberalization in Postwar Europe," CEPR Discussion Papers 2253, C.E.P.R. Discussion Papers.
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    7. Joseph H. Haslag & Jahyeong Koo, 1999. "Financial repression, financial development and economic growth," Working Papers 9902, Federal Reserve Bank of Dallas.
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    Cited by:

    1. Rashid, Abdul, 2010. "Testing for nonlinear causation between capital inflows and domestic prices," MPRA Paper 26082, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation financial markets and the macroeconomy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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