Working Paper: CEPR ID: DP7718
Authors: Sylvester C. W. Eijffinger; Zongxin Qian
Abstract: Recent cross-country studies on the globalization and output-inflation tradeoff correlation find openness has no significant effect on OECD countries. Those studies assume parameter constancy across countries. In this paper, we argue that this assumption does not hold for major industrialized countries. Using individual time series analysis, we find the effect of openness on the output-inflation trade off differ in sign and size across countries. In contrast to previous cross-country studies, we find globalization has significantly changed some major industrialized countries? output inflation tradeoff. This has important implications for future theoretical and empirical research.
Keywords: openness; output-inflation tradeoff; Phillips curve; time inconsistency theory
JEL Codes: E31; E58; F10; F30; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| globalization (trade openness) (F69) | output-inflation tradeoff (E31) |
| globalization (trade openness) (F69) | Phillips curve steepening (E31) |
| globalization (trade openness) (F69) | Phillips curve flattening (E31) |
| globalization (financial openness) (F30) | Phillips curve steepening (E31) |
| globalization (financial openness) (F30) | Phillips curve flattening (E31) |