Because unanticipated monetary expansion leads to real exchange rate d
epreciation, and because the harms of real depreciation are greater in
more open economies, the benefits of unanticipated expansion are decr
easing in the degree of openness. Models in which the absence of preco
mmitment in monetary policy leads to excessive inflation therefore pre
dict lower average inflation in more open economies. This paper tests
this prediction using cross-country data. The data show a strong and r
obust negative link between openness and inflation.