The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14379.
Length: Date of creation: Oct 2008 Date of revision: Handle: RePEc:nbr:nberwo:14379
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Find related papers by JEL classification: E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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Gita Gopinath & Roberto Rigobon, 2006.
"Sticky Borders,"
NBER Working Papers
12095, National Bureau of Economic Research, Inc.
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