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

Author

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  • Donald L. Kohn

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.

Suggested Citation

  • Donald L. Kohn, 2006. "The effects of globalization on inflation and their implications for monetary policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51.
    • Handle: RePEc:fip:fedbcp:y:2006:n:51:x:6
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    File URL: https://www.bostonfed.org/-/media/Documents/conference/51/conf51i.pdf
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    Citations

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    Cited by:

    1. 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.
    2. Thompson, Daniel, 2021. "Stagnant services and the gradual disinflation of advanced economies," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 128-148.
    3. Argia M. Sbordone, 2007. "Globalization and Inflation Dynamics: The Impact of Increased Competition," NBER Chapters, in: International Dimensions of Monetary Policy, pages 547-579, National Bureau of Economic Research, Inc.
    4. Toshitaka Sekine, 2009. "Another Look at Global Disinflation," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR, National Bureau of Economic Research, Inc.
    5. Guilloux-Nefussi, Sophie, 2020. "Globalization, market structure and inflation dynamics," Journal of International Economics, Elsevier, vol. 123(C).
    6. Gaiotti, Eugenio, 2008. "Has globalisation changed the Phillips curve? Firm-level evidence on the effect of activity on prices," MPRA Paper 8389, University Library of Munich, Germany.
    7. 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.
    8. Taufeeq Ajaz & Md Zulquar Nain & Bandi Kamaiah, 2016. "Inflation and openness in India: an asymmetric approach," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 9(2), pages 190-203, July.
    9. 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.
    10. Watson, Anna, 2016. "Trade openness and inflation: The role of real and nominal price rigidities," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 137-169.
    11. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 265-305.
    12. Chengsi Zhang, 2016. "How Has Globalisation Affected Inflation in China?," The World Economy, Wiley Blackwell, vol. 39(2), pages 301-313, February.
    13. Calza, Alessandro, 2008. "Globalisation, domestic inflation and global output gaps: Evidence from the euro area," Working Paper Series 890, European Central Bank.
    14. Ms. Dora M Iakova, 2007. "Flattening of the Phillips Curve: Implications for Monetary Policy," IMF Working Papers 2007/076, International Monetary Fund.

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