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Trade Openness, Capital Mobility, and the Sacrifice Ratio

  • Joseph P. Daniels

    ()

    (Center for Global and Economic Studies, Marquette University)

  • David D. VanHoose

    ()

    (Hanmaker School of Business, Baylor University)

This paper develops and evaluates empirically the implications of a theoretical model of an open economy in which variations in both trade openness and capital mobility can influence the sacrifice ratio. Key predictions forthcoming from the model are that both forms of globalization can independently affect the capital ratio, once the influences of the level of central bank independence and the degree of wage stickiness in nations‘ economies are taken into account. Examination of cross-country data encompassing 58 disinflations for 16 countries yields evidence consistent with these essential predictions of the theoretical framework.

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File URL: http://www.busadm.mu.edu/mrq/workingpapers/wpaper0701.pdf
File Function: First Version, 2007
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Paper provided by Marquette University, Center for Global and Economic Studies and Department of Economics in its series Working Papers and Research with number 0701.

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Length: 25 pages
Date of creation: Jan 2007
Date of revision:
Publication status: Published in the Open Economies Review, Vol 20(4), 2009, pages 473-487
Handle: RePEc:mrq:wpaper:0701
Contact details of provider: Postal: P.O. Box 1881, Milwaukee WI 53201-1881
Phone: (414) 288-7377
Web page: http://www.busamd.mu.edu/Economics/
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  1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
  2. John V. Duca & David D. VanHoose, 2000. "Has Greater Competition Restrained U.S. Inflation?," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 729=741, January.
  3. Daniels, Joseph P & Nourzad, Farrokh & Vanhoose, David D, 2005. "Openness, Central Bank Independence, and the Sacrifice Ratio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 371-79, April.
  4. Maria Cristina Terra, 1995. "Openess and inflation: a new assessment," Textos para discussão 339, Department of Economics PUC-Rio (Brazil).
  5. Christopher Bowdler, 2005. "Openness, exchange rate regimes and the Phillips curve," Economics Papers 2005-W25, Economics Group, Nuffield College, University of Oxford.
  6. 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.
  7. Loungani, Prakash & Razin, Assaf & Yuen, Chi-Wa, 2001. "Capital mobility and the output-inflation tradeoff," Journal of Development Economics, Elsevier, vol. 64(1), pages 255-274, February.
  8. Daniels, Joseph P. & VanHoose, David D., 2006. "Openness, the sacrifice ratio, and inflation: Is there a puzzle?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1336-1347, December.
  9. Joshua Aizenman & Ilan Noy, 2004. "Endogenous Financial and Trade Openness," NBER Working Papers 10496, National Bureau of Economic Research, Inc.
  10. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  11. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports 324, Federal Reserve Bank of New York.
  12. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  13. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  14. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 265-305.
  15. Assaf Razin & Prakash Loungani, 2005. "Globalization and Equilibrium Inflation-Output Tradeoffs," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 171-192 National Bureau of Economic Research, Inc.
  16. M. F. Bleaney, 1999. "The Disappearing Openness-Inflation Relationship; A Cross-Country Analysis of Inflation Rates," IMF Working Papers 99/161, International Monetary Fund.
  17. Razin, Assaf & Yuen, Chi-Wa, 2002. "The 'New Keynesian' Phillips curve: closed economy versus open economy," Economics Letters, Elsevier, vol. 75(1), pages 1-9, March.
  18. Duca, John V, 1987. "The Spillover Effects of Nominal Wage Rigidity in a Multisector Economy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 117-21, February.
  19. Daniels, Joseph, 1997. "Optimal sterilization policies in interdependent economies," Journal of Economics and Business, Elsevier, vol. 49(1), pages 43-60, February.
  20. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
  21. John V. Duca & David D. VanHoose, 1998. "The rise of goods-market competition and the fall of nominal wage contracting: endogenous wage contracting in a multisector economy," Working Papers 9805, Federal Reserve Bank of Dallas.
  22. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  23. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, June.
  24. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
  25. Karras, Georgios, 1999. "Openness and the effects of monetary policy," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 13-26, January.
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