Globalization, Macroeconomic Performance, and Monetary Policy

17 Pages Posted: 17 Apr 2008 Last revised: 13 Aug 2010

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: April 2008

Abstract

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (1) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (2) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (3) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (4) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes.

Suggested Citation

Mishkin, Frederic S., Globalization, Macroeconomic Performance, and Monetary Policy (April 2008). NBER Working Paper No. w13948, Available at SSRN: https://ssrn.com/abstract=1121738

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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