REVISITING THE ROMER’S HYPOTHESIS:Time Series Evidence from Small Open Economy


Considerably more commodities are available to consumers in open economies and openness brings these at cheaper rate, according to Rome’s hypothesis. The Johansen cointegration technique nullified Romer’s hypothesis that greater openness brings less inflation. Economic growth had significant positive impact on inflation, which is according to realm of Phillips curve and Okun’s law. Supply of money was also documented by positive effect on inflation, as the classical neutrality of money reveals. This study recommended that Sri Lankan government should be very careful in policies regarding supply of money and openness as it hurts consumers.

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