Open and closed economy central banks react differently to inflation – research

Global fintech

Open economies respond less strongly to changes in expected inflation than closed ones, a researcher from the Federal Reserve Bank of St Louis finds.

In the paper, Fernando Leibovici examines how a country’s openness to trade affects the way its central bank conducts monetary policy. He studies differences in the use of the Taylor rule and the weightings of economic data by 26 economies.

While policy-makers in the two types of economies respond to inflation differently, he finds no correlation

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