IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/891.html
   My bibliography  Save this paper

Some simple tests of the globalization and inflation hypothesis

Author

Listed:
  • Jane E. Ihrig
  • Steven B. Kamin
  • Deborah J. Lindner
  • Jaime R. Marquez

Abstract

This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Toward that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for that hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. Second, we find no evidence that the trend decline in the sensitivity of inflation to the domestic output gap observed in many countries owes to globalization. Finally, and most surprisingly, our econometric results indicate no increase over time in the responsiveness of inflation to import prices for most countries. However, even though we find no evidence that globalization is affecting the parameters of the inflation process, globalization may be helping to stabilize real GDP and hence inflation. Over time, the volatility of real GDP growth has declined by more than the volatility of domestic demand, suggesting that net exports increasingly are acting to buffer output from fluctuations in domestic demand.

Suggested Citation

  • Jane E. Ihrig & Steven B. Kamin & Deborah J. Lindner & Jaime R. Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers 891, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:891
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/2007/891/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/2007/891/ifdp891.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    2. Ben S. Bernanke, 2007. "Globalization and monetary policy," Speech 262, Board of Governors of the Federal Reserve System (U.S.).
    3. Matteo Ciccarelli & Benoît Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
    4. Randall S Kroszner, 2007. "The Changing Dynamics of Inflation," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 42(3), pages 7-13, July.
    5. Albert S. Dexter & Maurice D. Levi & Barrie R. Nault, 2005. "International Trade and the Connection between Excess Demand and Inflation," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 699-708, September.
    6. Tommaso Monacelli, 2003. "Monetary Policy in a Low Pass-Through Environment," Working Papers 228, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2004. "Competition, Globalization and the Decline of Inflation," CEPR Discussion Papers 4695, C.E.P.R. Discussion Papers.
    8. Mr. Ashoka Mody & Ms. Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 2007/257, International Monetary Fund.
    9. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
    10. Richard W. Fisher, 2006. "Coping with globalization's impact on monetary policy," Speeches and Essays 82, Federal Reserve Bank of Dallas.
    11. Peter S. Heller, 2007. "Addressing Climate Change," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 107-120, January.
    12. Gust, Christopher & Marquez, Jaime, 2004. "International comparisons of productivity growth: the role of information technology and regulatory practices," Labour Economics, Elsevier, vol. 11(1), pages 33-58, February.
    13. Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
    14. Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
    15. Athanasios Orphanides & David W. Wilcox, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71.
    16. Stockton, David J., 1985. "Unbiased estimation of the inflationary effects of relative price disturbances," Economics Letters, Elsevier, vol. 17(4), pages 335-340.
    17. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Wiley Blackwell, vol. 10(3), pages 317-334, December.
    18. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    19. Javier Andrés & Eva Ortega & Javier Vallés, 2003. "Market structure and inflation differentials in the European Monetary Union," Working Papers 0301, Banco de España.
    20. Erasmus K. Kersting & Mark A. Wynne, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
    21. David J. Stockton, 1985. "Unbiased estimation of the inflationary effects of relative price disturbances," Working Paper Series / Economic Activity Section 48, Board of Governors of the Federal Reserve System (U.S.).
    22. Geoffrey M. B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
    23. Janet L. Yellen, 2006. "Monetary policy in a global environment," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun2.
    24. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    25. 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.
    26. repec:fip:fedgsq:y:2007:i:mar2 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abbas, Syed K. & Bhattacharya, Prasad Sankar & Sgro, Pasquale, 2016. "The new Keynesian Phillips curve: An update on recent empirical advances," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 378-403.
    2. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2010. "Some Simple Tests of the Globalization and Inflation Hypothesis," International Finance, Wiley Blackwell, vol. 13(3), pages 343-375, December.
    3. Calza, Alessandro, 2008. "Globalisation, domestic inflation and global output gaps: Evidence from the euro area," Working Paper Series 890, European Central Bank.
    4. Alessandro Calza, 2008. "Globalisation, domestic inflation and the global output gaps: evidence from the Euro era," Globalization Institute Working Papers 13, Federal Reserve Bank of Dallas.
    5. Toshitaka Sekine, 2009. "Another Look at Global Disinflation," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR, National Bureau of Economic Research, Inc.
    6. Byrne, Joseph P. & Kaneez, Fatima & Kontonikas, Alexandros, 2010. "IInflation and Globalisation: A Dynamic Factor Model with Stochastic Volatility," SIRE Discussion Papers 2010-05, Scottish Institute for Research in Economics (SIRE).
    7. Sandra Eickmeier & Katharina Pijnenburg, 2013. "The Global Dimension of Inflation – Evidence from Factor-Augmented Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(1), pages 103-122, February.
    8. Chengsi Zhang, 2016. "How Has Globalisation Affected Inflation in China?," The World Economy, Wiley Blackwell, vol. 39(2), pages 301-313, February.
    9. Kabukçuoğlu, Ayşe & Martínez-García, Enrique, 2018. "Inflation as a global phenomenon—Some implications for inflation modeling and forecasting," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 46-73.
    10. Robert Anderton & Paul Hiebert, 2009. "The Impact of Globalisation on the Euro Area Macroeconomy," Discussion Papers 09/14, University of Nottingham, GEP.
    11. Argia M. Sbordone, 2007. "Globalization and Inflation Dynamics: The Impact of Increased Competition," NBER Chapters, in: International Dimensions of Monetary Policy, pages 547-579, National Bureau of Economic Research, Inc.
    12. Adamcik, Santiago, 2008. "Efectos de la Globalizacion sobre la Inflacion y la politica Monetaria Domestica [Globalization Effect on both Inflation and Domestic Monetary Policy]," MPRA Paper 9242, University Library of Munich, Germany.
    13. Robert Anderton & Alessandro Galesi & Marco Lombardi & Filippo di Mauro, 2010. "Key Elements of Global Inflation," RBA Annual Conference Volume (Discontinued), in: Renée Fry & Callum Jones & Christopher Kent (ed.),Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia.
    14. Christian Dreger & Malte Rieth & David Pothier, 2015. "Is Globalization Reducing the Ability of Central Banks to Control Inflation? In-Depth Analysis," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 106, number pbk106, july.
    15. Bloch, Laurence, 2012. "Product market regulation, trend inflation and inflation dynamics in the new Keynesian Phillips curve," Economic Modelling, Elsevier, vol. 29(5), pages 2058-2070.
    16. Frederic S. Mishkin, 2009. "Globalization, Macroeconomic Performance, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 187-196, February.
    17. Kuttner, Ken & Robinson, Tim, 2010. "Understanding the flattening Phillips curve," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 110-125, August.
    18. Ernest Gnan & Maria Teresa Valderrama, 2006. "Globalization, Inflation and Monetary Policy," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 37-54.
    19. Çiçek, Serkan, 2012. "Globalization and flattening of Phillips Curve in Turkey between 1987 and 2007," Economic Modelling, Elsevier, vol. 29(5), pages 1655-1661.
    20. Pym Manopimoke, 2015. "Globalization and International Inflation Dynamics: The Role of the Global Output Gap," PIER Discussion Papers 8., Puey Ungphakorn Institute for Economic Research, revised Nov 2015.

    More about this item

    Keywords

    Inflation (Finance); Globalization;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:891. 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: . General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.