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
Date Written: August 25, 2011
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
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