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Globalisation Effect on Inflation in the Great Moderation Era: New Evidence from G10 Countries

34 Pages Posted: 26 Aug 2011 Last revised: 18 Feb 2015

Duo Qin

University of London - Department of Economics, SOAS

Xinhua He

Chinese Academy of Social Science - Institute of World Economics and Politics

Date Written: August 25, 2011

Abstract

The effect of globalisation on inflation is modeled and simulated for ten countries from G10 during the Great Moderation period. The results are supportive of the globalisation hypothesis. In particular, the results show that dynamic channels and magnitudes of globalisation to domestic inflation are highly heterogeneous from country to country, that increases in trade openness could be either inflationary or deflationary, while increased imports from low-cost emerging-market economies have been mostly deflationary, and that there has been almost no direct globalisation impact as far as inflation persistence is concerned while the impact on inflation variability can be positive as well as negative. Overall, globalisation is shown to have contributed positively to the aspect of low inflation rather than that of stable inflation during the Great Moderation era.

Keywords: inflation dynamics, globalisation

JEL Classification: C52, E31, E37, F41

Suggested Citation

Qin, Duo and He, Xinhua, Globalisation Effect on Inflation in the Great Moderation Era: New Evidence from G10 Countries (August 25, 2011). Available at SSRN: https://ssrn.com/abstract=1917100 or http://dx.doi.org/10.2139/ssrn.1917100

Duo Qin

University of London - Department of Economics, SOAS ( email )

Thomhaugh Street
Russell Square
London, WC1H 0XG
United Kingdom

Xinhua He (Contact Author)

Chinese Academy of Social Science - Institute of World Economics and Politics ( email )

Beijing
China

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