CAUSALITY RELATIONS BETWEEN THE EFFECTIVE EXCHANGE RATE IN IMPORTS AND INFLATION IN ISRAEL (VAR, PPP, COLA).
Item
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Title
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CAUSALITY RELATIONS BETWEEN THE EFFECTIVE EXCHANGE RATE IN IMPORTS AND INFLATION IN ISRAEL (VAR, PPP, COLA).
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Identifier
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AAI8501187
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identifier
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8501187
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Creator
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YAHALOM, SHMUEL ZVI.
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Contributor
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Salih Neftci
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Date
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1984
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General
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Abstract
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Israel suffers for many years from high rates of inflation and large devaluations. Economic theory recognizes a relationship between those two variables but there is no agreement on the causality relationship between them.;This paper investigates this relationship between inflation and the effective exchange rate in imports by using the method of Vector Autoregressive (VAR) with monthly data. The result indicates that inflation is causing devaluation; this result repeats when using the impulse response function.;Since a Cost of Living Allowance (COLA) exists in Israel, the addition of this policy, in a deterministic (known in advance) and non-deterministic (not known in advance) format, showed that the COLA policy together with the inflation have a large effect on the exchange rate in the deterministic model. In the non-deterministic model we find a major influence of the non-deterministic variable on the exchange rate and somewhat less significant influence on the prices.;The results obtained showed that the government policy to curb inflation in recent years was the wrong one. Instead of the attempt to control exchange rate, the government should have fought the inflation rate.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
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Program
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Economics
