Globalisation and monetary policy
Globalisation, which has been accelerating since the mid nineties, has triggered important economic changes. The article deals with three possible consequences of globalisation which might be relevant for monetary policy. Possible implications for the conduct of monetary policy are also discussed. The driving force behind the observed low and stable inflation seems to be the enhanced conduct of monetary policy, rather than globalisation. Nevertheless, the emergence of low-cost countries implies some major relative price shifts as commodity prices increase and prices of manufactured goods decline in relative terms. Although neutral in the long run, these relative price changes might pose a challenge for monetary policy, as globalisation is an enduring phenomenon. Therefore, monetary policy analysis should now, more than ever, be based upon a broad range of information and indicators, from which both downward and upward risks to price stability can be inferred. The globally observed flattening of the Phillips curve can be explained by both better monetary policies and structural economic changes, such as globalisation. This flatter Phillips curve would suggest that, in terms of output losses, the short-term costs of disinflation are higher. Given that the flattening of the Phillips curve results from better monetary policies, and that globalisation dampens the inflationary impact of cost push shocks, this finding must be qualified however. Global financial integration partly explains the increased international synchronisation of long term interest rates. At the same time, a weaker correlation between policy rates and longer term interest rates can be observed. These findings suggest that the traditional interest rate channel has become less effective. Given that better anchored inflation expectations are the main reason for this weakening link, one can qualify this finding too. Moreover, communicating information on the economic and monetary analysis can be an important additional tool to steer longer term market interest rates.
Volume (Year): (2006)
Issue (Month): ii (September)
|Contact details of provider:|| Postal: Boulevard de Berlaimont 14, B-1000 Bruxelles|
Phone: (+ 32) (0) 2 221 25 34
Fax: (+ 32) (0) 2 221 31 62
Web page: https://www.nbb.be/
More information through EDIRC
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.:
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Hans Christiansen & Charles Pigott, 1997. "Long-Term Interest Rates in Globalised Markets," OECD Economics Department Working Papers 175, OECD Publishing.
- John F. Henry & L. Randall Wray, 1998.
- John F. Henry & L. Randall Wray, 1998. "Economic Time," Economics Working Paper Archive wp_255, Levy Economics Institute.
- William R. White, 2006. "Is price stability enough?," BIS Working Papers 205, Bank for International Settlements.
- Steven B. Kamin & Mario Marazzi & John W. Schindler, 2006. "The Impact of Chinese Exports on Global Import Prices," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 179-201, May.
- Fagan, Gabriel & Henry, Jerome & Mestre, Ricardo, 2005. "An area-wide model for the euro area," Economic Modelling, Elsevier, vol. 22(1), pages 39-59, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbb:ecrart:y:2006:m:september:i:ii:p:7-22. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.