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Globalization, Import Prices and Producer Prices in Austria

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The growing theoretical and empirical literature suggests that globalization may have reduced inflation, particularly in high-income countries. Austria’s integration in the world economy has made a quantum leap over the past decade. Has this development dampened inflation in Austria? This paper first offers a broad overview of six channels through which one could expect globalization to reduce inflation. Then, two specific channels are investigated empirically for Austria. First, the effects from the increasing share of imports from low-cost countries on import prices are estimated. It is found that overall import prices were slightly dampened by the rising, and meanwhile substantial, share of imports from the new EU Member States. By contrast, China and other emerging economies play a negligible role for Austrian import price developments. Second, the effect of global competition on producer prices in Austria is studied. It is found that globalization has moderately dampened relative producer prices in the Austrian manufacturing sector, while increases in labor productivity had a larger effect. A rationale for the rather modest globalization effects on import and producer price inflation in Austria is that the country’s foreign trade and FDI links are still – despite the surge of links with central and eastern European countries – mainly with other high-income European countries.:

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Monetary-Policy-and-the-Economy/2006/Monetary-Policy-and-the-Economy-Q3-06/chapters/mop_2006_3_glatzer_tcm16-48469.pdf
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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2006)
Issue (Month): 3 ()
Pages: 24–43

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Handle: RePEc:onb:oenbmp:y:2006:i:3:b:2

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Keywords: Globalization indicators; Import and producer prices; Inflation; Austria;

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References

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  8. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, Elsevier, vol. 126(1), pages 25-51, May.
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Cited by:
  1. Robert Anderton & Alessandro Galesi & Marco Lombardi & Filippo di Mauro, . "Key elements of global inflation," Discussion Papers 09/22, University of Nottingham, GEP.
  2. Raphael Anton Auer & Kathrin Degen & Andreas M. Fischer, 2011. "Low-Wage Import Competition, Inflationary Pressure,and Industry Dynamics in Europe," Working Papers, Swiss National Bank 2011-09, Swiss National Bank.
  3. Auer, Raphael & Degen, Kathrin & Fischer, Andreas M, 2010. "Globalization and Inflation in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8130, C.E.P.R. Discussion Papers.
  4. Ernest Gnan & Maria Teresa Valderrama, 2006. "Globalization, Inflation and Monetary Policy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 37–54.
  5. Robert Anderton & Paul Hiebert, . "The Impact of Globalisation on the Euro Area Macroeconomy," Discussion Papers 09/14, University of Nottingham, GEP.

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