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Is globalization the root cause of declining inflation?

Author

Listed:
  • Juhana Hukkinen

    (Monetary Policy and Research Department of Bank of Finland)

  • Matti Viren

    (Monetary Policy and Research Department of Bank of Finland & Economics Department of University of Turku)

Abstract

This paper examines the reasons for the declining path of inflation since the 1970s. In particular, it focusses on the role of globalization – covering both changes in the global market structure and technical and structural developments in trade and production. In addition, the paper deals with changes in the basic transmission mechanisms of price and wage inflation. The paper makes use of different data from individual countries and panel of countries. These data show that the dispersion of inflation and the behavior of relative prices follow a pattern that is consistent with several globalization indicators. Also estimation results show that these indicators are useful in tracing the developments of trend inflation after the 1960s. Moreover, it is shown that the basic relationships between prices and costs are nonlinear depending on the level of inflation.

Suggested Citation

  • Juhana Hukkinen & Matti Viren, 2022. "Is globalization the root cause of declining inflation?," Discussion Papers 153, Aboa Centre for Economics.
    • Handle: RePEc:tkk:dpaper:dp153
    as

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    File URL: http://ace-economics.fi/kuvat/dp153.pdf
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    References listed on IDEAS

    as
    1. Nigel Pain & Isabell Koske & Marte Sollie, 2008. "Globalisation and OECD consumer price inflation," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-32.
    2. Hahn, Elke, 2020. "The wage-price pass-through in the euro area: does the growth regime matter?," Working Paper Series 2485, European Central Bank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Inflation; globalization; Phillips curve; trade unions;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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