Is Globalization Weakening the Inflation-Output Relationship?
25 Pages Posted: 5 Dec 2013
Date Written: December 5, 2013
This paper investigates whether trade and financial openness has weakened the inflation-output trade-off and caused a shift in the preferences of monetary authorities. Based on the backward-looking Phillips curve and a Taylor-type interest rate rule, our results for France, the UK and the USA for the 1970-2012 period do not provide support for the relevance of globalization in making inflation less responsive to output expansions. Moreover, the change of preferences of Central Banks towards growth-oriented objectives is neither due to higher trade nor to financial globalization.
Keywords: Phillips curve, globalization, state-space model, Taylor rule, inflation
JEL Classification: F15
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