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The Great Globalization and Changing Inflation Dynamics

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  • Chengsi Zhang

    (School of Finance and China Financial Policy Research Center, Renmin University of China)

Abstract

This paper investigates the changing impact of economic globalization on U.S. inflation dynamics during the period from 1980 to 2012. We develop an extended New Keynesian Phillips curve incorporating richer dynamics and foreign economic slack from microfoundations. Using unknown structural break tests, we identify a significant structural change in the early 1990s in the model, after which domestic inflation responds more strikingly to the foreign than to the domestic output gap. The finding indicates that it is plausible for the Federal Reserve to augment its policy analysis framework with globalization factors in the globalized world.

Suggested Citation

  • Chengsi Zhang, 2017. "The Great Globalization and Changing Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 13(4), pages 191-226, December.
    • Handle: RePEc:ijc:ijcjou:y:2017:q:4:a:6
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    Cited by:

    1. Sirio Aramonte, 2022. "Inflation risk and the labor market: beneath the surface of a flat Phillips curve," BIS Working Papers 1054, Bank for International Settlements.
    2. Bobeica, Elena & Ciccarelli, Matteo & Vansteenkiste, Isabel, 2021. "The changing link between labor cost and price inflation in the United States," Working Paper Series 2583, European Central Bank.
    3. Simon Gilchrist & Egon Zakrajšek, 2020. "Trade Exposure and the Evolution of Inflation Dynamics," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 6, pages 173-226, Central Bank of Chile.
    4. Maciej Ryczkowski, 2021. "Money and inflation in inflation-targeting regimes – new evidence from time–frequency analysis," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 17-44, January.
    5. Lei Lv & Zhixin Liu & Yingying Xu, 2019. "Technological progress, globalization and low-inflation: Evidence from the United States," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-19, April.

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