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Has globalisation changed the Phillips curve? Firm-level evidence on the effect of activity on prices

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  • Gaiotti, Eugenio

Abstract

It has been recently argued that the flattening of the Phillips curve, observed in the main industrial countries over the last two decades, is due to globalisation, which exposes domestic firms to fiercer international competition and severs the link between domestic demand and pricing. A more traditional explanation, with very different policy implications, centres on an increase in the credibility of the monetary regime. Substantial identification problems plague the empirical literature on this issue. We take advantage of a unique dataset including firm-level information on the pricing, capacity utilisation, export orientation, foreign competition, import penetration and delocalisation activity of about 2,000 Italian firms in the period 1988-2005; we test whether the finding of a weaker link between capacity utilisation and prices is confirmed at company level, whether it is robust to controlling for inflation expectations and whether it is concentrated among those firms that are more exposed to globalisation. According to the evidence presented, this is not the case. The conclusion is that the observed flattening of the Phillips curve is not due to globalisation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8389.

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Date of creation: 11 Apr 2008
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Handle: RePEc:pra:mprapa:8389

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Keywords: Phillips curve; globalisation; inflation; monetary policy;

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Cited by:
  1. Benkovskis, Konstantins & Caivano, Michele & D’Agostino, Antonello & Dieppe, Alistair & Hurtado, Samuel & Karlsson, Tohmas & Ortega, Eva & Várnai, Tímea, 2011. "Assessing the sensitivity of inflation to economic activity," Working Paper Series 1357, European Central Bank.
  2. Antonio Bassanetti & Michele Caivano & Alberto Locarno, 2013. "Modelling italian potential output and the output gap," Working Papers 7, Department of the Treasury, Ministry of the Economy and of Finance.
  3. Heiner Mikosch, 2013. "Der Zusammenhang zwischen Preisen, Kapazitätsauslastung und Wettbewerb," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, KOF Swiss Economic Institute, ETH Zurich, vol. 7(1), pages 91-103, March.
  4. Heiner Mikosch, 2012. "Sticky Prices, Competition and the Phillips Curve," KOF Working papers 11-294, KOF Swiss Economic Institute, ETH Zurich.
  5. Eugenio Gaiotti, 2010. "Commentary: Has Globalization Changed the Phillips Curve? Firm-Level Evidence on the Effect of Activity on Prices," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 51-84, March.
  6. Jordi Galí, 2010. "Commentary: Inflation Pressures and Monetary Policy in a Global Economy," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 93-102, March.

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