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Globalization and inflation dynamics: the impact of increased competition Author info | Abstract | Publisher info | Download info | Related research | Statistics Argia M. Sbordone
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This paper analyzes the potential effect of global market competition on inflation dynamics. It does so through the lens of the Calvo model of staggered price setting, which implies that inflation depends on expected future inflation and a measure of marginal costs. I modify the assumption of a constant elasticity of demand, standard in this model, to provide a channel through which an increase in the number of traded goods may affect the degree of strategic complementarity in price setting and hence alter the dynamic response of inflation to marginal costs. I first discuss the behavior of the variables that drive the impact of trade openness on this response, and then I evaluate whether an increase in the variety of traded goods of the magnitude observed in the United States in the 1990s might have a significant quantitative impact. I find that it is difficult to argue that such an increase in trade would have generated a sufficiently large increase in U.S. market competition to reduce the slope of the inflation-marginal cost relation.
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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number
324.
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Date of creation: 2008Date of revision:
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Keywords: Price levels Inflation (Finance) Deflation (Finance) Competition Other versions of this item:
This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Donald L. Kohn, 2006.
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Timothy Cogley & Argia M. Sbordone, 2005.
"A search for a structural Phillips curve ,"
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Other versions: Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006.
"Trade integration, competition, and the decline in exchange-rate pass-through ,"
International Finance Discussion Papers
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"Monetary Policy and Exchange Rate Volatility in a Small Open Economy ,"
Review of Economic Studies ,
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Nicola Cetorelli & Linda S. Goldberg, 2008.
"Banking Globalization, Monetary Transmission, and the Lending Channel ,"
NBER Working Papers
14101, National Bureau of Economic Research, Inc.
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Joseph P. Daniels & David D. VanHoose, 2007.
"Trade Openness, Capital Mobility, and the Sacrifice Ratio ,"
Working Papers and Research
0701, Marquette University, Department of Economics.
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