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Globalization, Macroeconomic Performance, and Monetary Policy

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Author Info
Frederic S. Mishkin

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Abstract

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (1) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (2) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (3) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (4) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13948.

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Date of creation: Apr 2008
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Handle: RePEc:nbr:nberwo:13948

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
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  1. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September. [Downloadable!]
    Other versions:
  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
    Other versions:
  3. Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2007. "Outsourcing and Volatility," NBER Working Papers 13144, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings, Federal Reserve Bank of Kansas City, pages 77-112. [Downloadable!]
  5. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Economics Department. [Downloadable!]
  6. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, bonds, money markets and exchange rates - measuring international financial transmission," Working Paper Series 452, European Central Bank. [Downloadable!]
    Other versions:
  7. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78. [Downloadable!]
  9. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Erceg, Christopher & Gust, Christopher & López-Salido, J David, 2007. "The Transmission of Domestic Shocks in Open Economies," CEPR Discussion Papers 6574, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr. [Downloadable!]
  12. Francis E. Warnock & Veronica Cacdac Warnock, 2006. "International Capital Flows and U.S. Interest Rates," NBER Working Papers 12560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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