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International Trade and the Connection between Excess Demand and Inflation

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  • Albert S. Dexter
  • Maurice D. Levi
  • Barrie R. Nault

Abstract

This paper demonstrates that globalization, taking the form of a higher import component of consumption and a larger export component of GDP, is the cause of the apparent breakdown in the relationship between excess demand and inflation. Within a parsimonious empirical framework, we show that increasing openness of the US economy is all that is needed to re-establish the relationship between inflation and capacity utilization. We also show that international trade has a significant separate influence on inflation, and is important for identifying a Phillips curve relationship between unemployment and inflation. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 13 (2005)
Issue (Month): 4 (09)
Pages: 699-708

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Handle: RePEc:bla:reviec:v:13:y:2005:i:4:p:699-708

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576

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Cited by:
  1. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.).
  2. Hamid Baghestani, 2008. "Predicting capacity utilization: Federal Reserve vs time-series models," Journal of Economics and Finance, Springer, vol. 32(1), pages 47-57, January.
  3. Eggoh, Jude C. & Khan, Muhammad, 2014. "On the nonlinear relationship between inflation and economic growth," Research in Economics, Elsevier, vol. 68(2), pages 133-143.
  4. Ernst Glatzer & Ernest Gnan & Maria Teresa Valderrama, 2006. "Globalization, Import Prices and Producer Prices in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 24–43.

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