Some simple tests of the globalization and inflation hypothesis
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.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ashoka Mody & Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 07/257, International Monetary Fund.
- Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
- Ben S. Bernanke, 2007. "Globalization and monetary policy," Speech 262, Board of Governors of the Federal Reserve System (U.S.).
- Ciccarelli, Matteo & Mojon, Benoît, 2006.
Kiel Working Papers
1337, Kiel Institute for the World Economy (IfW).
- Matteo Ciccarelli & Benoît Mojon, 2007. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy.
- Ciccarelli, Matteo & Mojon, Benoît, 2005. "Global inflation," Working Paper Series 0537, European Central Bank.
- Matteo Ciccarelli & Benoît Mojon, 2005. "Global Inflation," Working Papers Central Bank of Chile 357, Central Bank of Chile.
- Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago.
- Kenneth S. Rogoff, 2003.
"Globalization and global disinflation,"
Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78.
- Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
- Stockton, David J., 1985. "Unbiased estimation of the inflationary effects of relative price disturbances," Economics Letters, Elsevier, vol. 17(4), pages 335-340.
- Monacelli, Tommaso, 2003.
"Monetary policy in a low pass-through environment,"
Working Paper Series
0227, European Central Bank.
- Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
- Janet L. Yellen, 2006.
"Monetary policy in a global environment,"
FRBSF Economic Letter,
Federal Reserve Bank of San Francisco, issue jun2.
- Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
- Richard W. Fisher, 2006. "Coping with globalization's impact on monetary policy," Speech 82, Federal Reserve Bank of Dallas.
- Athanasios Orphanides & David W. Wilcox, 1996.
"The opportunistic approach to disinflation,"
Finance and Economics Discussion Series
96-24, Board of Governors of the Federal Reserve System (U.S.).
- John M. Roberts, 2006.
"Monetary Policy and Inflation Dynamics,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(3), September.
- Gust, Christopher & Marquez, Jaime, 2004.
"International comparisons of productivity growth: the role of information technology and regulatory practices,"
Elsevier, vol. 11(1), pages 33-58, February.
- Christopher J. Gust & Jaime R. Marquez, 2002. "International comparisons of productivity growth: the role of information technology and regulatory practices," International Finance Discussion Papers 727, Board of Governors of the Federal Reserve System (U.S.).
- Javier Andrés & Eva Ortega & Javier Vallés, 2003. "Market structure and inflation differentials in the European Monetary Union," Working Papers 0301, Banco de España;Working Papers Homepage.
- Peter S. Heller, 2007. "Addressing Climate Change," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 107-120, January.
- Frederic S. Mishkin, 2007.
NBER Working Papers
13147, National Bureau of Economic Research, Inc.
- 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.).
- Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
- 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, 09.
- Chen, Natalie & Imbs, Jean & Scott, Andrew, 2004. "Competition, Globalization and the Decline of Inflation," CEPR Discussion Papers 4695, C.E.P.R. Discussion Papers.
- Randall S Kroszner, 2007. "The Changing Dynamics of Inflation," Business Economics, Palgrave Macmillan, vol. 42(3), pages 7-13, July.
- Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
- repec:fip:fedgsq:y:2007:i:mar2 is not listed on IDEAS
- Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
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: (Marlene Vikor)
If references are entirely missing, you can add them using this form.