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Some Simple Tests of the Globalization and Inflation Hypothesis

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  • Jane Ihrig
  • Steven B. Kamin
  • Deborah Lindner
  • Jaime Marquez
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    Abstract

    This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Towards that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for this hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. Second, we find no evidence that the trend decline in the sensitivity of inflation to the domestic output gap observed in many countries owes to globalization. Finally, and most surprisingly, our econometric results indicate no increase over time in the responsiveness of inflation to import prices for most countries.

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    File URL: http://hdl.handle.net/10.1111/j.1468-2362.2010.01268.x
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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal International Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 3 (Winter)
    Pages: 343-375

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    Handle: RePEc:bla:intfin:v:13:y:2010:i:3:p:343-375

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=1367-0271

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    Cited by:
    1. Satti, Saqlain Latif & Shahbaz, Muhammad & Mujahid, Nooreen & Ali, Amjad, 2013. "Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh," MPRA Paper 51675, University Library of Munich, Germany, revised 21 Nov 2013.
    2. Qin, Duo & He, Xinhua, 2012. "Globalisation effect on inflation in the great moderation era: New evidence from G10 countries," Economics Discussion Papers 2012-56, Kiel Institute for the World Economy.
    3. Çiçek, Serkan, 2012. "Globalization and flattening of Phillips Curve in Turkey between 1987 and 2007," Economic Modelling, Elsevier, vol. 29(5), pages 1655-1661.
    4. Raphael A Auer & Philip Sauré, 2013. "The globalisation of inflation: a view from the cross section," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 113-118 Bank for International Settlements.
    5. Heiner Mikosch, 2012. "Sticky Prices, Competition and the Phillips Curve," KOF Working papers 11-294, KOF Swiss Economic Institute, ETH Zurich.

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