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Globalization, Import Prices and Producer Prices in Austria

The growing theoretical and empirical literature suggests that globalization may have reduced inflation, particularly in high-income countries. Austria’s integration in the world economy has made a quantum leap over the past decade. Has this development dampened inflation in Austria? This paper first offers a broad overview of six channels through which one could expect globalization to reduce inflation. Then, two specific channels are investigated empirically for Austria. First, the effects from the increasing share of imports from low-cost countries on import prices are estimated. It is found that overall import prices were slightly dampened by the rising, and meanwhile substantial, share of imports from the new EU Member States. By contrast, China and other emerging economies play a negligible role for Austrian import price developments. Second, the effect of global competition on producer prices in Austria is studied. It is found that globalization has moderately dampened relative producer prices in the Austrian manufacturing sector, while increases in labor productivity had a larger effect. A rationale for the rather modest globalization effects on import and producer price inflation in Austria is that the country’s foreign trade and FDI links are still – despite the surge of links with central and eastern European countries – mainly with other high-income European countries.:

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Monetary-Policy-and-the-Economy/2006/Monetary-Policy-and-the-Economy-Q3-06/chapters/mop_2006_3_glatzer_tcm16-48469.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2006)
Issue (Month): 3 ()
Pages: 24–43

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Handle: RePEc:onb:oenbmp:y:2006:i:3:b:2
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  1. Assaf Razin & Prakash Loungani, 2005. "Globalization and Inflation-Output Tradeoffs," NBER Working Papers 11641, National Bureau of Economic Research, Inc.
  2. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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  7. Robert G. King, 2005. "Comment on "Globalization and Disinflation: The Efficiency Channel"," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 193-199 National Bureau of Economic Research, Inc.
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  9. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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  12. Assaf Razin & Prakash Loungani, 2005. "Globalization and Equilibrium Inflation-Output Tradeoffs," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 171-192 National Bureau of Economic Research, Inc.
  13. Aiginger, Karl, 1997. "The Use of Unit Values to Discriminate between Price and Quality Competition," Cambridge Journal of Economics, Oxford University Press, vol. 21(5), pages 571-92, September.
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