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Inflation-Output Tradeoff as Equilibrium Outcome of Globalization

  • Alon Binyamini
  • Assaf Razin

The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14379.

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Date of creation: Oct 2008
Date of revision:
Handle: RePEc:nbr:nberwo:14379
Note: IFM
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  1. Bentolila, Samuel & Dolado, Juan J. & Jimeno, Juan F, 2007. "Does Immigration Affect the Phillips Curve? Some Evidence for Spain," CEPR Discussion Papers 6604, C.E.P.R. Discussion Papers.
  2. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  3. David Romer, 1998. "A New Assessment Of Openness And Inflation: Reply," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 649-652, May.
  4. 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.
  5. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 869-903, November.
  6. Roberts, John M, 2006. "Monetary Policy and Inflation Dynamics," MPRA Paper 812, University Library of Munich, Germany.
  7. Loungani, Prakash & Razin, Assaf & Yuen, Chi-Wa, 1997. "Capital Mobility and the Output-Inflation Tradeoff," CEPR Discussion Papers 1577, C.E.P.R. Discussion Papers.
  8. 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.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  10. Gita Gopinath & Roberto Rigobon, 2006. "Sticky Borders," NBER Working Papers 12095, National Bureau of Economic Research, Inc.
  11. Robert J. Tetlow & Brian Ironside, 2007. "Real-Time Model Uncertainty in the United States: The Fed, 1996-2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1533-1561, October.
  12. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  13. Chen, Natalie & Imbs, Jean & Scott, Andrew, 2004. "Competition, Globalization and the Decline of Inflation," CEPR Discussion Papers 4695, C.E.P.R. Discussion Papers.
  14. Assaf Razin & Chi-Wa Yuen, 2001. "The "New Keynesian" Phillips Curve: Closed Economy vs. Open Economy," NBER Working Papers 8313, National Bureau of Economic Research, Inc.
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