Working Paper: NBER ID: w13280
Authors: Assaf Razin; Alon Binyamini
Abstract: The paper provides a unified analysis of globalization effects on the Phillips curve and monetary policy, in a New-Keynesian framework. The main proposition of the paper is twofold. Labor, goods, and capital mobility flatten the tradeoff between inflation and activity. If policy makers are guided by the welfare criterion of the representative household, globalization forces also lead monetary policy to be more aggressive with regard to inflation fluctuations but, at the same time, more benign with respect to the output-gap fluctuations.
Keywords: Globalization; Inflation; Phillips Curve; Monetary Policy
JEL Codes: E31; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased labor mobility (J62) | Flattening of the inflation-output tradeoff (E31) |
| Goods trade (F19) | Flattening of the inflation-output tradeoff (E31) |
| Capital mobility (F20) | Flattening of the inflation-output tradeoff (E31) |
| Globalization (F60) | Less responsive inflation rate to changes in economic activity (E31) |
| International labor flows (J61) | Mitigation of wage demands (J38) |
| Mitigation of wage demands (J38) | Affects marginal costs and inflation dynamics (E31) |
| Globalization (F60) | Weakened relationship between domestic production and inflation (E31) |
| Domestic output fluctuations (E32) | Reduced impact on inflation (E31) |