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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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    Bibliographic Info

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

    Volume (Year): 51 (2006)
    Issue (Month): ()
    Pages:

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

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

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    Cited by:
    1. Efrem Castelnuovo, 2006. "Tracking U.S. Inflation Expectations with Domestic and Global Indicators," "Marco Fanno" Working Papers 0031, Dipartimento di Scienze Economiche "Marco Fanno".
    2. 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.
    3. Fabio Milani, 2009. "Global Slack and Domestic Inflation Rates: A Structural Investigation for G-7 Countries," Working Papers 080919, University of California-Irvine, Department of Economics.
    4. 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.
    5. 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.
    6. Calza, Alessandro, 2008. "Globalisation, domestic inflation and global output gaps: Evidence from the euro area," Working Paper Series 0890, European Central Bank.
    7. 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.
    8. Toshitaka Sekine, 2009. "Another look at global disinflation," BIS Working Papers 283, Bank for International Settlements.
    9. Dora M. Iakova, 2007. "Flattening of the Phillips Curve," IMF Working Papers 07/76, International Monetary Fund.

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