TY - JOUR
T1 - The inflation rate and financial premium
AU - Wang, Fuhmei
N1 - Funding Information:
support from National Science Council in Taiwan, under Contract NSC 92-2415-H-006-003 is herewith gratefully acknowledged. All errors are mine.
PY - 2009
Y1 - 2009
N2 - 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.
AB - 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.
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U2 - 10.1080/13504850701221741
DO - 10.1080/13504850701221741
M3 - Article
AN - SCOPUS:67650273279
SN - 1350-4851
VL - 16
SP - 689
EP - 692
JO - Applied Economics Letters
JF - Applied Economics Letters
IS - 7
ER -