Globalization and Disinflation: A Note
17 Pages Posted: 13 Apr 2005
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Globalization and Disinflation: A Note
Date Written: January 2005
Abstract
We analyze how globalization forces induce monetary authorities, guided in their policies by the welfare criterion of a representative household, to put greater emphasis on reducing the inflation rate than on narrowing the output gaps. Specifically, I demonstrate how the relative weight of the output gap term in a utility-based loss function shrinks when the economy is open to international trade in goods, and is integrated to the world capital markets.
Keywords: Aggregate supply, trade openness, captial market openness, inflation-output tradeoff
JEL Classification: E50, F02
Suggested Citation: Suggested Citation
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Globalization and Disinflation: A Note
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