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Was Globalization the Root Cause of Low Inflation?

Author

Listed:
  • HUKKINEN, JUHANA

    (Monetary Policy and Research Department of Bank of Finland, Helsinki)

  • VIREN, MATTI

    (Monetary Policy and Research Department of Bank of Finland, Helsinki and 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. La globalizzazione è stata l’origine della bassa inflazione? Questo articolo esamina le ragioni della riduzione dell’inflazione a partire dagli anni ’70. In particolare, viene messo al centro il ruolo della globalizzazione – considerando sia i cambiamenti nel mercato globale che gli sviluppi tecnici e strutturali nel commercio e nella produzione. Inoltre, l’articolo tratta i cambiamenti nei meccanismi alla base della trasmissione dell’inflazione dai prezzi ai salari. Nell’articolo si utilizzano dati relativi a singoli paesi e a panel di paesi. Questi dati mostrano che la dispersione dell’inflazione e il comportamento dei prezzi relativi seguono un modello coerente con differenti indicatori di globalizzazione. Inoltre, le stime mostrano che questi indicatori sono utili per spiegare l’andamento dell’inflazione dopo gli anni ’60. Infine, si riscontra che le relazioni di base tra prezzi e costi non sono lineari e dipendenti dal livello dell’inflazione.

Suggested Citation

  • Hukkinen, Juhana & Viren, Matti, 2024. "Was Globalization the Root Cause of Low Inflation?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 77(3), pages 337-370.
    • Handle: RePEc:ris:ecoint:0975
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    References listed on IDEAS

    as
    1. Karras, Georgios, 2017. "When is Lower Inflation less Stable? Evidence from Eight Developing Economies," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(3), pages 333-352.
    2. Ferreira, Cândida, 2020. "Globalisation and Economic Growth: A Panel Data Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 187-236.
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    6. Raphael A. Auer & Claudio Borio & Andrew Filardo, 2017. "The Globalisation of Inflation: The Growing Importance of Global Value Chains," CESifo Working Paper Series 6387, CESifo.
    7. Jonathon Hazell & Juan Herreño & Emi Nakamura & Jón Steinsson, 2022. "The Slope of the Phillips Curve: Evidence from U.S. States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1299-1344.
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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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