IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Globalization,the Output-Inflation Tradeoff, and Inflation

  • Harald Badinger

This paper provides a comprehensive assessment of the relation between inflation and globalization, measured in terms of trade and financial openness. Using a large crosssection of 91 countries covering the period 1985-2004, we establish two main empirical regularities. Both higher trade and financial openness i) reduce central bank?s inflation bias,yielding lower average inflation, and ii) are associated with a larger output-inflation tradeoff. This evidence is at odds with the standard Barro-Gordon framework, which would require globalization to have a negative effect on the output-inflation tradeoff to yield lower equilibrium inflation, but it is consistent with a recent strand of new Keynesian models emphasizing the role of imperfect competition and wage rigidities. Moreover, our findings do not hold up for the OECD subsample, which suggests that a group of highly developed countries has been successful in creating an institutional framework for central banks that eliminates distortions due to the time inconsistency problem.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.fiw.at/fileadmin/Documents/Publikationen/Working_Paper/N_010-badinger.pdf
File Function: full text
Download Restriction: none

Paper provided by FIW in its series FIW Working Paper series with number 010.

as
in new window

Length: 46
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:wsr:wpaper:y:2008:i:010
Contact details of provider:

Order Information: Postal: FIW Project Office Austrian Institute of Economic Research Arsenal Objekt 20 A-1030 Vienna
Email:


References listed on IDEAS
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.:

as in new window
  1. William C. Gruben & Darryl McLeod, 2003. "The openness-inflation puzzle revisited," Center for Latin America Working Papers 0203, Federal Reserve Bank of Dallas.
  2. Joseph P. Daniels & David D. VanHoose, 2007. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Working Papers and Research 0701, Marquette University, Center for Global and Economic Studies and Department of Economics.
  3. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  4. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  5. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
  6. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  7. Donald W.K. Andrews & Marcelo J. Moreira & James H. Stock, 2004. "Optimal Invariant Similar Tests for Instrumental Variables Regression," Cowles Foundation Discussion Papers 1476, Cowles Foundation for Research in Economics, Yale University.
  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. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
  10. Aisen, Ari & Veiga, Francisco Jose, 2006. "Does Political Instability Lead to Higher Inflation? A Panel Data Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1379-1389, August.
  11. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
  12. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  13. Temple, Jonathan, 2002. "Openness, Inflation, and the Phillips Curve: A Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 450-68, May.
  14. David Romer, 1991. "Openness and Inflation: Theory and Evidence," NBER Working Papers 3936, National Bureau of Economic Research, Inc.
  15. Hardouvelis, G.A., 1988. "Monetary Policy Games, Inflationary Bias And Openness," Papers fb-_88-17, Columbia - Graduate School of Business.
  16. Joshua Aizenman & Ilan Noy, 2009. "Endogenous Financial and Trade Openness," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 175-189, 05.
  17. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 437-466.
  18. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  19. Gruben, William C. & McLeod, Darryl, 2002. "Capital account liberalization and inflation," Economics Letters, Elsevier, vol. 77(2), pages 221-225, October.
  20. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  21. Christopher Bowdler, 2005. "Openness, exchange rate regimes and the Phillips curve," Economics Papers 2005-W25, Economics Group, Nuffield College, University of Oxford.
  22. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  23. Philip R. Lane & Gian Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II; Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004," IMF Working Papers 06/69, International Monetary Fund.
  24. Assaf Razin & Alon Binyamini, 2007. "Flattening of the Short-run Trade-off between Inflation and Domestic Activity: The Analytics of the Effects of Globalization," Kiel Working Papers 1363, Kiel Institute for the World Economy.
  25. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  26. 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.
  27. Jong-Wha Lee, 1992. "International Trade, Distortions and Long-Run Economic Growth," IMF Working Papers 92/90, International Monetary Fund.
  28. 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.
  29. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  30. Selen Sarisoy Guerin, 2006. "The Role of Geography in Financial and Economic Integration: A Comparative Analysis of Foreign Direct Investment, Trade and Portfolio Investment Flows," The World Economy, Wiley Blackwell, vol. 29(2), pages 189-209, 02.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wsr:wpaper:y:2008:i:010. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.