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

  • Eugenio Gaiotti


    (Bank of Italy, Economic Outlook and Monetary Policy Department)

The flattening of the Phillips curve observed in the industrial countries has been attributed to globalisation, while the traditional explanation centres on monetary policy credibility. The empirical literature is not conclusive, since macroeconomic data are affected by substantial identification problems. This paper argues that recourse to micro data is needed to identify structural changes in the slope of the Phillips curve. Taking advantage of a unique dataset including about 2,000 Italian firms, the paper tests whether a change in the link between capacity utilisation and prices is confirmed at company level, after controlling for inflation expectations, and whether it is concentrated among those firms that are more exposed to globalisation on either the product or the labour market. The answer is negative in all cases. The results do not support the view that the flattening of the Phillips curve is due to globalisation.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 676.

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Date of creation: Jun 2008
Date of revision:
Handle: RePEc:bdi:wptemi:td_676_08
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