used (reproduced, used via the internet, etc.) for non-commercial purposes and provided that the source is mentioned. Their use for commercial purposes is only permitted with the prior express consent of the SNB. General information and data published without reference to a copyright may be used without mentioning the source.To the extent that the information and data clearly derive from outside sources, the users of such information and data are obliged to respect any existing copyrights and to obtain the right of use from the relevant outside source themselves.
Limitation of liabilityThe SNB accepts no responsibility for any information it provides. Under no circumstances will it accept any liability for losses or damage which may result from the use of such information. This limitation of liability applies, in particular, to the topicality, accuracy, validity and availability of the information.
This paper develops a new methodology to estimate the eect of low-wage import competition on U.S. producer prices. We rst document that when low-wage countries grow, their exports to the United States increase most in labor-intensive sectors. Second, we demonstrate that the temporary and relative component of imports induced by labor intensity and output growth in low-wage countries is orthogonal to U.S. supply and demand shocks and can, therefore, be utilized to identify the causal impact of import competition on prices. In a panel covering 325 manufacturing industries from 1997 to 2006, we nd that imports from nine low-wage countries are associated with strong downward pressure on U.S. prices. When these nations capture 1% U.S. market share, producer prices decrease by 3.1%, which is nearly fully accounted by a 2.4% increase in labor productivity and a 0.4% decrease in markups. Overall, we nd that imports from the examined countries have decreased U.S. manufacturing PPI in ation by around two percentage points each year.
Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional tradebased measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.
JEL codes:
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.