Globalization, the output–inflation tradeoff and inflation

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in FIW -Working PaperGlobalization, the Output-Inflation Tradeoff, and Inflation Harald BadingerThis 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.

Implications of Globalization for the Output-inflation Relationship: an Assessment

“…The estimated interaction effect of both variables is significantly negative, a result that is consistent with the argument that the scope of the positive effect of openness on the sacrifice ratio is reduced by a simultaneous positive influence of greater central bank independence. Daniels and VanHoose (2009b) and Badinger (2009) contemplate the separate and combined effects of both an increased degree of trade openness and a greater extent of capital mobility. Daniels and VanHoose build on the analysis in Daniels, Norzad, and VanHoose (2005) by including capital-mobility measures separately from and alongside a trade-openness measure.…”

Financial Globalization and Monetary Policy

“…6 Movements in this short-term rate, in turn, ultimately affect economic activity and prices through its effect on a range of financial conditions, including, among others: longer-term (See, among others, Kohn, 2006, Hooper, Spencer, and Slok, 2007, Kamin, Marazzi, and Schindler, 2006, and Pain, Koske, and Sollie 2006 5 See, among others, Rogoff (2004), Spiegel (2008), and Badinger (2009). 6 At present, of course, the financial crisis and associated recession have led a number of central banks to lower their policy rates to near zero and rely on unconventional measures to provide stimulus.…”

The Consequences of Corruption on Inflation in Developing Countries: Evidence from Panel Cointegration and Causality Tests

“…Additionally, some control variables (which are determinants of inflation) were included in the long-run equation to prevent the problem of omitted-variable bias. To this end, based on Romer (1993), Lane (1997), Terra (1998), Gokal and Hanif (2004), Wynne and Kersting (2007), Badinger (2009), Blackburn and Powell (2011), Evans (2012, Ben Ali and Sassi (2016), GDPGAP to measure the difference between actual output and potential output, OPEN for the economic integration level of a country into the world, and M2 for price stability and the decisions of the monetary authority were added to the regression. Econometric analyses were conducted using EViews 9 and Gauss10 software.…”