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Globalization and the Output-Inflation Tradeoff: New Time Series Evidence

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  • Eijffinger, S.C.W.
  • Qian, Z.

    (Tilburg University, Center for Economic Research)

Abstract

Recent cross-country studies on the globalization and output-inflation tradeoff correlation find openness has no significant effect on OECD countries. Those studies assume parameter constancy across countries. In this paper, we argue that this assumption does not hold for major industrialized countries. Using individual time series analysis, we find the effect of openness on the output-inflation trade off differ in sign and size across countries. In contrast to previous cross-country studies, we find globalization has significantly changed some major industrialized countries’ output inflation tradeoff. This has important implications for future theoretical and empirical research.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-27.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:201027

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Web page: http://center.uvt.nl

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Keywords: openness; output-inflation tradeoff; Phillips curve; time inconsistency theory;

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  1. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2011. "Cross-sectional dependence robust block bootstrap panel unit root tests," Journal of Econometrics, Elsevier, vol. 163(1), pages 85-104, July.
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  3. Fanelli, Luca, 2005. "Testing the New Keynesian Phillips curve through Vector Autoregressive models: Results from the Euro area," MPRA Paper 1617, University Library of Munich, Germany, revised Jan 2007.
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  7. Loungani, Prakash & Razin, Assaf & Yuen, Chi-Wa, 2001. "Capital mobility and the output-inflation tradeoff," Journal of Development Economics, Elsevier, vol. 64(1), pages 255-274, February.
  8. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
  9. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  10. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  11. Badinger, Harald, 2009. "Globalization, the output-inflation tradeoff and inflation," European Economic Review, Elsevier, vol. 53(8), pages 888-907, November.
  12. Bakhshi, Hasan & Khan, Hashmat & Rudolf, Barbara, 2007. "The Phillips curve under state-dependent pricing," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2321-2345, November.
  13. Joseph P. Daniels & David D. VanHoose, 2009. "Exchange-Rate Pass Through, Openness, Inflation, and the Sacrifice Ratio," Working Papers and Research 0901, Marquette University, Center for Global and Economic Studies and Department of Economics.
  14. James Feyrer, 2009. "Trade and Income -- Exploiting Time Series in Geography," NBER Working Papers 14910, National Bureau of Economic Research, Inc.
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