Domestic inflation and exchange rate changes: The less-developed countries’ case

Lowinger, Thomas C.

doi:10.1007/bf02696532

Cited by 13 publications

(8 citation statements)

References 7 publications

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“…Unless a freely floating exchange rate system were adopted, the finding of a causal relationship from inflation to the exchange rate would reflect a government policy decision to not allow inflation to affect the prices of exportables. Lowinger [1978] reasoned, however, that infrequent and large devaluations would be more likely to generate wage-price spirals than continuous adjustment because of strong inflationary expectations as people await the devaluation and because sudden large devaluations often become an excuse for firms to raise prices. In any case, to the extent that purchasing power parity operates (either freely or through government manipulation), we would expect a regression of exchange rate changes on inflation to show a significant effect and again the magnitude of this feedback effect is critical in the success or failure of the exchange rate policy.…”

Section: The Journal Of Development Studiesmentioning

confidence: 94%

“…Cooper [1971] in his cross-sectional study on discrete devaluations estimated the trade-off to be about 30-40 per cent. Lowinger [1978] in a time series study of four developing countries (Brazil, Columbia, Philippines, and Korea), three of which adopted variable rate regimes in the 1960s to early 1970s, has estimated the effects to be even smaller but significant. Himarios [1987] investigated the impact of discrete devaluations on 15 countries from 1953 to 1973 using separate time series regressions for each country.…”

Section: Theoretical Issuesmentioning

confidence: 97%

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Exchange rate policy and price level changes: Casualty tests for Turkey in the post‐liberalisation period

Rittenberg

1993

Journal of Development Studies

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The purpose of the present study is to examine the relationship between exchange rate changes and price level changes in Turkey during the 1980s using some modified Granger causality tests. During this period, Turkish exchange rate policy was characterised by considerable flexibility, in contrast to the long-standing policy of fixing the exchange rate until a foreign exchange crisis necessitated devaluation. The weight of the evidence presented suggests that Granger causality runs from price level changes to exchange rate changes but that there is not feedback causality from exchange rate changes to price level changes. This conclusion is not altered by the inclusion of a money supply variable. Thus, for Turkey, exchange rate adjustment does not seem to have created a vicious cycle of currency depreciation leading to inflation as is often feared. Whether this result will hold for other developing countries which adopt flexible exchange rate regimes will require further testing.

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Section: The Journal Of Development Studiesmentioning

confidence: 94%

Section: Theoretical Issuesmentioning

confidence: 97%

Exchange rate policy and price level changes: Casualty tests for Turkey in the post‐liberalisation period

Rittenberg

1993

Journal of Development Studies

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“…Lowinger, 1987;Lim, 1987;McNelis, 1987;Morrison, 1987). The impact of nominal exchange rate flexibility on inflation seems to be ambiguous.…”

Section: Introductionmentioning

confidence: 99%

The Sources of Inflation in Egypt: A Multivariate Co-integration Analysis

El-Sakka¹,

Ghali²

2005

Review of Middle East Economics and Finance

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The aim of this paper is to empirically investigate the sources of inflation in Egypt. For this, price dynamics is herein represented by a vector error-correction model, which we use to test for the existence of a long-run relationship between the consumer price index, real gross domestic product (GDP), the exchange rate, interest rate, money supply and world prices. Then using the augmented VAR approach, we test for Granger non-causality between the different variables and inflation. The main results that are of interest to monetary policy in Egypt suggest that structural reforms based on improving the country's productive capacity, shrinking the budget deficit and credit to the government, are crucial for controlling inflation.

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“…This causes the excess demand for money to fall and inflation to rise. Studies by Lowinger (1978) and Bahmani-Oskooee and Malixi (1992) found that devaluations are inflationary.…”

Section: Literature Reviewmentioning

confidence: 99%

Causal Relationship between Money and Inflation during a High Inflation Period: The Case of Turkey

Gocmen¹

2016

JIBE

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This paper reexamines the causal relationship between money supply and inflation in the context of Turkish economy. Co integration and Error Correction models are applied to monthly data covering the period 1970-1996. Most previous studies on the relationship between money and prices estimate a bivariate model raising the possibility of omitted variable bias. The present paper overcomes this problem by using both bivariate and multivariate models. In contrast to most previous studies on Turkey, the present study finds a feedback relationship between money supply and inflation. However, the causality from inflation to money supply is much stronger than the causality from money supply to inflation both in the bivariate and multivariate model. In order to provide more light on the money-price nexus and to see if the empirical results are sensitive to the series used, the causal relationship is also investigated by using the price level measured by the CPI. It is found that there is one-way causality from money supply to price level in the bivariate model and feedback relationship in the multivariate model.

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Domestic inflation and exchange rate changes: The less-developed countries’ case

Cited by 13 publications

References 7 publications

Exchange rate policy and price level changes: Casualty tests for Turkey in the post‐liberalisation period

Exchange rate policy and price level changes: Casualty tests for Turkey in the post‐liberalisation period

The Sources of Inflation in Egypt: A Multivariate Co-integration Analysis

Causal Relationship between Money and Inflation during a High Inflation Period: The Case of Turkey

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