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Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?

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  • Assaf Razin
  • Alon Binyamini

Abstract

The paper provides a unified analysis of globalization effects on the Phillips curve and monetary policy, in a New-Keynesian framework. The main proposition of the paper is twofold. Labor, goods, and capital mobility flatten the tradeoff between inflation and activity. If policy makers are guided by the welfare criterion of the representative household, globalization forces also lead monetary policy to be more aggressive with regard to inflation fluctuations but, at the same time, more benign with respect to the output-gap fluctuations.

Suggested Citation

  • Assaf Razin & Alon Binyamini, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?," NBER Working Papers 13280, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13280 Note: IFM ME
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    References listed on IDEAS

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    10. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    11. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    12. 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.
    13. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F., 2008. "Does immigration affect the Phillips curve? Some evidence for Spain," European Economic Review, Elsevier, vol. 52(8), pages 1398-1423, November.
    14. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
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    Cited by:

    1. Oguz Atuk & Cem Aysoy & Mustafa Utku Ozmen & Cagri Sarikaya, 2014. "Turkiye’de Enflasyonun Is Cevrimlerine Duyarliligi : Cikti Acigina Duyarli TUFE Alt Gruplarinin Saptanmasi," Working Papers 1437, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Milani, Fabio, 2009. "Does global slack matter more than domestic slack in determining U.S. inflation?," Economics Letters, Elsevier, vol. 102(3), pages 147-151, March.
    3. Ayse Kabukcuoglu & Enrique Martínez-García, 2016. "What Helps Forecast U.S. Inflation?—Mind the Gap!," Koç University-TUSIAD Economic Research Forum Working Papers 1615, Koc University-TUSIAD Economic Research Forum.
    4. 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.
    5. 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.
    6. Milani, Fabio, 2012. "Has Globalization Transformed U.S. Macroeconomic Dynamics?," Macroeconomic Dynamics, Cambridge University Press, vol. 16(02), pages 204-229, April.
    7. 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.
    8. Faith Christian Cacnio, 2013. "Analysing inflation dynamics in the Philippines using the new Keynesian Phililips curve," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 50(2), pages 53-82, December.
    9. Peacock, Chris & Baumann, Ursel, 2008. "Globalisation, import prices and inflation dynamics," Bank of England working papers 359, Bank of England.
    10. Milani, Fabio, 2010. "Global slack and domestic inflation rates: A structural investigation for G-7 countries," Journal of Macroeconomics, Elsevier, pages 968-981.
    11. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España;Occasional Papers Homepage.
    12. Dieppe, Alistair & Ortega, Eva & D'Agostino, Antonello & Karlsson, Tohmas & Benkovskis, Konstantins & Caivano, Michele & Hurtado, Samuel & Várnai, Tímea, 2011. "Assessing the sensitivity of inflation to economic activity," Working Paper Series 1357, European Central Bank.
    13. Alexander Mihailov & Fabio Rumler & Johann Scharler, 2011. "The Small Open-Economy New Keynesian Phillips Curve: Empirical Evidence and Implied Inflation Dynamics," Open Economies Review, Springer, vol. 22(2), pages 317-337, April.
    14. Kabukcuoglu, Ayse & Martinez-Garcia, Enrique & Soytas, Mehmet A., 2017. "Exploring the Nexus Between Inflation and Globalization Under Inflation Targeting Through the Lens of New Zealand’s Experience," Globalization and Monetary Policy Institute Working Paper 308, Federal Reserve Bank of Dallas.
    15. Ayse Kabukcuoglu & Enrique Martínez-García, 2015. "Inflation as a Global Phenomenon—Some Implications for Policy Analysis and Forecasting," Koç University-TUSIAD Economic Research Forum Working Papers 1520, Koc University-TUSIAD Economic Research Forum.
    16. Jaromir Baxa & Miroslav Plasil & Borek Vasicek, 2013. "Inflation and the Steeplechase Between Economic Activity Variables," Working Papers 2013/15, Czech National Bank, Research Department.
    17. Ashoka Mody & Franziska L Ohnsorge, 2007. "Can Domestic Policies Influence Inflation?," IMF Working Papers 07/257, International Monetary Fund.
    18. Saglio, Sophie & López-Villavicencio, Antonia, 2012. "Introducing price-setting behaviour in the Phillips Curve: the role of nonlinearities," MPRA Paper 46646, University Library of Munich, Germany.
    19. Fabio Milani, 2009. "The Effect of Global Output on U.S. Inflation and Inflation Expectations: A Structural Estimation," Working Papers 080920, University of California-Irvine, Department of Economics.
    20. repec:bpj:bejmac:v:17:y:2017:i:1:p:42:n:3 is not listed on IDEAS
    21. Bashar, Omar H.M.N., 2012. "The dynamics of aggregate demand and supply shocks in ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(5), pages 507-518.
    22. Dudley Cooke, 2010. "Monetary Policy and Trade Globalization," Working Papers 042010, Hong Kong Institute for Monetary Research.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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