Openness and Aggressive Monetary Policy : A Study of Inflation Volatility and Persistence

This paper investigates the relation between economic openness and the aggressiveness of monetary authorities to ensure price stability. In a sample of 114 countries for the period 1949-2001, we find that more open economies tend to have more aggressive monetary policies which results in less inflation volatility and persistence. We find this pattern emerges strongly after 1990. This latter finding suggests that the universal regime shift in 1990 is not just a simple process of increased policy aggressiveness. Countries also conduct more aggressive monetary policies in response to increased economic openness