The inflation rate and financial premium

Research output: Contribution to journalArticlepeer-review

Abstract

The conventional wisdom recognizes that depreciating the official exchange rate reduces the spread between official and financial exchange rates and hence financial premium decreases in the financial market. This article aims to investigate whether a trade-off between the inflation rate and financial premium does exist. Both theoretical examinations and numerical simulations indicate that the support for this property is extremely fragile. We also find that the less patient the government, the more stability of domestic price and financial premium.

Original languageEnglish
Pages (from-to)689-692
Number of pages4
JournalApplied Economics Letters
Volume16
Issue number7
DOIs
Publication statusPublished - 2009

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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