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The effects of globalization on inflation and their implications for monetary policy

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  • Donald L. Kohn
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    Abstract

    Policymakers here and abroad cannot lose sight of a fundamental truth: In a world of separate currencies that can fluctuate against each other over time, each country’s central bank determines its inflation rate. If the FOMC were to allow the U.S. economy to run beyond its sustainable potential for some time, inflation would eventually rise. And, this pickup would become self-perpetuating if it became embedded in inflation expectations. Thus, while a better understanding of the implications of globalization will aid in our understanding of inflation dynamics, it is also clear that such developments do not relieve central banks of their responsibility for maintaining price and economic stability.

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    File URL: http://www.bostonfed.org/economic/conf/conf51/papers/kohn.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal Conference Series ; [Proceedings].

    Volume (Year): (2006)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:fip:fedbcp:y:2006:n:51:x:6

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    Related research

    Keywords: Balance of trade ; International trade ; Globalization ; Inflation (Finance) ; Monetary policy;

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    Cited by:
    1. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports 324, Federal Reserve Bank of New York.
    2. Castelnuovo, Efrem, 2010. "Tracking U.S. inflation expectations with domestic and global indicators," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1340-1356, November.
    3. Sekine, Toshitaka, 2009. "Another look at global disinflation," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 220-239, June.
    4. Milani, Fabio, 2010. "Global slack and domestic inflation rates: A structural investigation for G-7 countries," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 968-981, December.
    5. Eugenio Gaiotti, 2008. "Has globalisation changed the Phillips curve? Firm-level evidence on the effect of activity on prices," Temi di discussione (Economic working papers) 676, Bank of Italy, Economic Research and International Relations Area.
    6. Alessandro Calza, 2008. "Globalisation, domestic inflation and global output gaps - evidence from the euro area," Working Paper Series 890, European Central Bank.
    7. Dora M. Iakova, 2007. "Flattening of the Phillips Curve: Implications for Monetary Policy," IMF Working Papers 07/76, International Monetary Fund.
    8. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings, Federal Reserve Bank of Kansas City, pages 265-305.
    9. Marzinotto, Benedicta, 2009. "Beyond monetary credibility: The impact of globalisation on the output-inflation trade-off in euro-area countries," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 162-176, August.

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