Technological progress, globalization and low-inflation: Evidence from the United States

Abstract

Since the late 1990s, particularly since the global financial crisis, the core inflation of main developed economies’ has been persistently below target. The factors hindering the achievement of inflation targets are nothing more than commodity price, oil supply, weakness of aggregate demand, and various other factors. In addition, technology and globalization have also played a significant role. This paper uses an extended hybrid New Keynesian Phillips Curve (NKPC) model to quantify the contribution of technology and globalization variables to inflation in the United States (U.S.). The analysis suggests that technology and globalization well explain the low inflation dynamics in the U.S., as the impact of globalization on domestic inflation has been weakening over the past 20 years or so, while the impact of technology on inflation has been increasing. At present, technology exerts a greater role than globalization on low-inflation in the U.S.. This raises a different perspective for understanding the phenomenon of low inflation in the U.S. and other regions.

The Impact of Technology on Regional Price Dispersion in the Us

“…That is why; this is the period when technology plays a noticeable role in the reduction of inflation. On a related note, Lv et al (2019) find that technology is even more influential on the US inflation than globalization for the 1999-2016 period. Similarly, Wadhwani (2000) predicted a similar impact of technology on the UK inflation for years after 2000.…”

How Money Relates to Value? An Empirical Examination on Gold, Silver and Bitcoin

“…Selgin (1997) further develops how a deflationary economy can grow. Moreover, Mincer & Danninger (2000) and Lv et al (2019) discuss the deflationary impact that technology growth has in the economy where productivity gains from technological progress reduce production costs letting firms produce any combination of higher output and/or lower prices. This suggests a "war" between the artificial pumping of money to sustain an arbitrary price level and the natural effect of technology that pressures the price level down.…”

The Spillover of Inflation among the G7 Countries

“…When other G7 countries adopt this new technology or import cheap, U.S.-made technology-related products, the price level of other G7 countries may decline. This information-technology-based inflation spillover is one of the reasons for the low inflation of the G7 countries in recent years (see also Lv et al (2019)).…”