Globalization, the output-inflation tradeoff and inflation |
| |
Authors: | Harald Badinger |
| |
Affiliation: | a Europainstitut, Department of Economics, Wirtschaftsuniversität Wien, Vienna, Austria b Center for Economic Studies (CES), University of Munich, Munich, Germany |
| |
Abstract: | This paper provides comprehensive evidence on the relation between inflation and globalization, defined here as trade and financial openness, using a large cross-section of 91 countries over the period 1985-2004. We establish two main empirical regularities: both higher trade and financial openness (i) reduce central banks’ 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 nominal rigidities. Our findings also support the relevance of the time-inconsistency hypothesis, which underlies the theoretical models predicting a relation between globalization and inflation. For the OECD subsample, however, we do not find an effect of openness on inflation (the output-inflation tradeoff), suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time-inconsistency problem. |
| |
Keywords: | E58 F41 F10 F30 |
本文献已被 ScienceDirect 等数据库收录! |
|