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Globalisation and the determinants of domestic inflation

  • William R White
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    The remarkable stability of low domestic inflation in many countries requires explanation. In this paper, a number of competing hypotheses are evaluated on a stand-alone basis, and all are found to be inadequate. This includes the view that this outcome has been solely the result of more effective disinflationary monetary policies. However, a combination of these hypotheses (including a significant role for increased global competition) seems to provide a plausible explanation, not only for continuing low inflation, but also its coexistence with rapid growth and low real interest rates. Unfortunately, the analysis also leads to the conclusion that rising inflation, unwinding financial imbalances, or both, could easily follow the welcome stability seen to date.

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    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 250.

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    Length: 29 pages
    Date of creation: Mar 2008
    Date of revision:
    Handle: RePEc:bis:biswps:250
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    1. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Working Papers 13329, National Bureau of Economic Research, Inc.
    2. William R. White, 2006. "Procyclicality in the financial system: do we need a new macrofinancial stabilisation framework?," BIS Working Papers 193, Bank for International Settlements.
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