Globalisation and Inflation in the OECD Economies

Abstract

Over the past 25 years inflation has moderated considerably in all OECD economies. At the same time, the production of many goods and services has become increasingly internationalised and the level of trade between the OECD and non-OECD economies has risen markedly. This paper investigates the extent to which the observed changes in the inflation process can be attributed to the increasing integration of non-OECD economies into the global economy. The results of the analysis show that i) import prices have become a more important driver of domestic consumer prices since the mid-1990s; ii) the sensitivity of inflation to domestic economic conditions has declined whereas the sensitivity to foreign economic conditions has risen, working through import prices; and iii) the strong GDP growth in the non-OECD economies over the past five years has contributed to the growth of real oil and metals prices. A scenario analysis shows that globalisation has put upward pressure on inflation via higher commodity prices and downward pressure via lower non-commodity import prices with the latter effect having dominated in most OECD economies. Mondialisation et inflation dans les économies de l'OCDE Au cours des 25 dernières années, l’inflation a considérablement diminué dans toutes les économies de l'OCDE. Pendant ce temps, la production de nombreux biens et services est devenue de plus en plus internationalisée et le niveau du commerce entre les pays de l'OCDE et les pays non membres a sensiblement augmenté. Ce papier étudie dans quelle mesure les changements observés dans le mécanisme d'inflation peuvent être attribués à l'intégration croissante des pays non membres de l'OCDE dans l'économie mondiale. Les résultats de l'analyse montrent que i) les prix d'importation jouent un rôle plus important dans la détermination des prix de consommation domestiques depuis le milieu des années 1990 ; ii) la sensibilité de l'inflation aux conditions économiques domestiques a diminué alors que la sensibilité aux conditions économiques extérieures a augmenté, en jouant à travers les prix d'importation ; et iii) la croissance forte du PIB dans les pays non membres au cours des cinq dernières années a contribué à l'augmentation des prix réels du pétrole et des métaux. Les simulations montrent que la globalisation a entraîné des pressions inflationnistes via des prix des matières premières plus élevés et des pressions désinflationnistes via des prix des importations des produits hors matières premières plus faibles. Le dernier effet semble avoir dominé dans la plupart des pays de l'OCDE.globalisation, monetary policy, simulation, inflation, politique monétaire, simulation, inflation, mondialisation

Modeling time-variation over the business cycle (1960–2017): an international perspective

“…Third, a number of empirical studies from very early on have challenged the notion that the flattening of the Phillips curve is much related to globalization-reporting mixed results on the relationship between openness and the sensitivity of inflation to the domestic (and even global) output gap over different time periods and across countries (see, e.g., IMF (2006IMF ( , 2013, Ball (2006), Pain et al (2006), Ihrig et al (2010), and Milani (2010). Figure I.B illustrates this same point suggesting that the inverse comovement between the import share and the slope of the Phillips curve on domestic slack implied by theory has leveled off or even reversed since 2008.…”

China's and India's Roles in Global Trade and Finance: Twin Titans for the New Millennium?

“…Finally, China imports signifi cant quantities of commodities such as iron, steel, non-ferrous metals and ores, and plastics. Accordingly, strong demand from China is often seen as a key driver of the rise in world commodity prices (see, for example, Pain et al, 2006;Bernanke, 2007;and Trichet, 2007). By contrast, India does not import many electronic and investment goods.…”

“…Other studies convey similar messages, notwithstanding some differences: see, for example, Hawksworth (2006) or Poncet (2006). to recent increases in the prices of energy and other commodities, which may have been a source of upward pressure on infl ation over the past few years (see, for example, Pain et al, 2006;Bernanke, 2007;and Trichet, 2007). 2 Third, the rapid pace of China's and India's economic development is often related to mounting concerns about the risks of outsourcing manufacturing activities to China and services to India (see, for example, Head et al, 2006).…”

Incomplete Contracts and the Impact of Globalization on Consumer Welfare

“…3 Liberation (a daily French newspaper), November, 10th 2006, our translation. 4 A recent study published by the OECD (2006) has confirmed that globalization has only a small impact on consumer prices. Over the period 1995 to 2005, the net effect of imports from low-wage countries was small and consumer price inflation in Japan and the US "might have even been lower in the absence of globalization" (see OECD, 2006, p.38).…”